David H. Annis, Ph.D.
Principal, Strategy & Investment
Quant Finance, Algorithmic Portfolios, Volatility
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…).