Per Jansson advocates for adapted forward guidance in monetary policy

Central banks have recently scaled back forward guidance, opting for 'data-dependent' and 'meeting-by-meeting' approaches.

This shift is attributed to two main factors: past guidance proved misleading, particularly before and during the 2021-2022 inflation upswing, when low rates were signalled despite eventual vigorous tightening.

Second, a series of major global shocks, including the pandemic, the war in Ukraine, and increased trade tariffs, have heightened overall uncertainty.

Jansson argues that while these explanations are natural, reducing guidance in turbulent times is problematic.

He contends that transparency about the central bank's assessments, trade-offs, risks, and most reasonable policy path is precisely what households, businesses, and market participants need.

This clarity helps reduce uncertainty stemming from monetary policy itself.

Central banks can enhance transparency through policy rate forecasts or by outlining reactions to alternative scenarios.

The Riksbank, for instance, has published its own policy rate forecast since 2007, finding it improved internal analytical work and policy discussions.

However, many central banks hesitate to publish such forecasts.

Their reasons include the challenge of achieving collective agreement in large, dispersed committees, the risk that forecasts could be perceived as promises rather than predictions, and concerns that inaccurate forecasts might damage institutional prestige.

Jansson counters that such forecast inaccuracy is an inherent 'feature, not a bug,' of responsive monetary policy, reflecting necessary adjustments to changing economic conditions.