John P. Urban and I were discussing the potential for a new, higher volatility regime now that the Fed has abandoned forward guidance as a policy tool. But does forward guidance serve its intended purpose of lowering volatility by removing uncertainty?

Obviously, this is a very nuanced question, but superficially, I'd say the answer is no. Although the Fed began using forward guidance as a policy tool in as early as 2003, it became standard in 2008 when the Bernanke Fed lowered FFR to their zero bound (federalreserve.gov/econres/feds/f…).

Considering the December 16, 2008 meeting as a change-point, there are two potential vol regimes: pre-forward guidance (1990-2008) and post-guidance (2008-2022). There were 207 meetings before Dec. 2008 and 125 since (not including last week's).