Forward Guidance

Definition

Central-bank communication about the likely future direction or conditions of policy, subject to uncertainty and changing information.

Central banks can communicate through policy statements, forecasts, or speeches. Guidance often describes what developments would justify a change in rates. It can move borrowing costs today because investors price in what they expect policy to do later.

Example

A central bank says it expects to keep rates steady until inflation slows. That statement helps people understand what could prompt a change.