The failure of forward guidance: Lessons from the pandemic recovery

Abstract This paper considers the effectiveness of the Federal Reserve's forward guidance in the 2020–2022 recovery from the Coronavirus pandemic. Forward guidance has become a common feature in macroeconomic policy models and a key tool of the Fed's monetary policy. I discuss three strategies for creating effective forward guidance: rules‐based policy, disclosing forecasts or projections, and statements by Fed officials. The Fed instituted some form of each of these strategies during the pandemic recovery. I find, however, that they were implemented in ways that made monetary policy less, rather than more, effective.