The case for strong and silent central banks

13, a curious article appeared in the . It said that the Federal Reserve was “likely to consider” raising interest rates by 0.75 percentage points at its meeting on June 15th. The article was unusually silent about its sources. And it proved uncannily prescient. Two days later the Fed did indeed raise interest rates by that amount, its biggest increase in 28 years. Many investors believe the central bank had used the press to warn financial markets about what it would do in advance (albeit not very far in advance). That would make the story an unconventional example of “forward guidance”.Central banks often telegraph what they might do before they do it. This kind of forward guidance is as old as central banking itself, according to Willem Buiter, a former rate-setter at the Bank of England. It is certainly as old as inflation targeting. The Reserve Bank of New Zealand (which was the first to adopt a formal inflation target in 1990) quickly learned that it could move markets with its utterances (what it called “open-mouth operations”). It now publicly forecasts its own decisions. If you want to know where it thinks its policy interest rate will be in the future, you do not have to look out for mysteriously sourced stories in the press. You can just download the central bank’s spreadsheet.