Global Central Bank Chiefs Bury Forward Guidance at Sintra
The heads of the European Central Bank, Bank of England, Bank of Canada and the U.S. Federal Reserve arrived at the same conclusion at the ECB's annual conference in Sintra, Portugal: central banks should tell markets…
The heads of the European Central Bank, Bank of England, Bank of Canada and the U.S. Federal Reserve arrived at the same conclusion at the ECB's annual conference in Sintra, Portugal: central banks should tell markets less about where rates are going. The degree of alignment is striking, and it points to Kevin Warsh's arrival at the Federal Reserve reshaping not just American monetary policy but the global framework conversation.
A Shared Rejection of Rate Signaling
Christine Lagarde said she regrets having felt "bound and compelled by forward guidance" during her tenure as ECB president. Bank of England Governor Andrew Bailey echoed the concern, warning that forward guidance is easy to install and hard to remove — and that it "becomes quite problematic after a while." Warsh, a longtime critic of the practice, summed up the mood on stage: "We have found common cause."
The convergence matters because forward guidance became a central pillar of post-2008 monetary policy. Warsh argued at Sintra that the Fed has been "burdened by the policies the Fed created in the 2008 crisis" and called the current moment a rare opportunity to return to first principles and ask hard questions.
Warsh Stays Silent on the Rate Path
Consistent with that philosophy, the Fed chair declined to signal whether the Federal Open Market Committee will raise rates in the weeks or months ahead. When the committee meets in late July, Warsh said, it will hold a closed-door discussion and make a judgment based on the data. "We're going to have a good debate," he said, "but I don't have much more for you than that."
Where Lagarde and Warsh Diverge
The shared headline masks a meaningful distinction in approach. Lagarde said she is moving away from forward guidance but toward what she called "framework guidance" — spelling out how the ECB weighs various indicators when making decisions, so markets can follow the reaction function even without explicit rate signals. Warsh appeared less inclined to formalize the Fed's policy reaction function in comparable detail.
Task Forces and Timeline
Warsh said membership in five outside task forces — meant to provide perspective on longer-term aspects of how the Fed operates — will likely be announced next week, with findings targeted by year-end. Former Bank of England Governor Mervyn King, according to Bloomberg, is set to lead the task force on central bank communication. Warsh said he felt "incredible comfort" hearing that colleagues worldwide are willing to go back to first principles on the conduct of monetary policy.