The power of forward guidance

The point of dissonance is, however, regarding the surplus liquidity sloshing around the banking system and the fear that it might endanger financial stability

One of the defining moments of the policy announcement is continuing to maintain an explicit forward guidance of keeping the rates and accommodative stance on hold till at least mid-2021, a practice initiated by Sveriges Riksbank. Many large central banks, such as the ECB, were initially averse to such an idea, favouring a more implicit rather than explicit guidance — like Lucas Papademos, a former vice-president of the ECB. He had differed with the erstwhile Fed Chairman Ben Bernanke who was more explicit in outlining the course of Fed measures after the Lehman Brothers debacle. Bernanke argued, and correctly, that