Our statement included a description both of the situation on the real side of the economy and on the inflation side and our sense was both, that the risks had increased on both sides, that the outlook for output was a bit weaker, as we indicated in our statement, but that, also, the inflation situation had become slightly riskier, as well.

From Q&A session

I'd say it would be more accurate to say we are looking for a bit more flexibility, given the uncertainties that we are facing and the risks that are occurring on both sides of our outlook.

An additional point. We, in general, this is more technical, but we, in general, prefer not to give advance rate guidance, that is, not to tell the market we're going to do this, that and the other. Rather, it's better for the FOMC to describe our outlook and the risks that we see for the outlook and let the markets make their own determination about how to price assets. One aspect of this change has been to move away from forward rate guidance, which we view as being something that should be undertaken mostly under unusual circumstances.

...

Our statement included a description both of the situation on the real side of the economy and on the inflation side and our sense was both, that the risks had increased on both sides, that the outlook for output was a bit weaker, as we indicated in our statement, but that, also, the inflation situation had become slightly riskier, as well. And so both sides of the mandate have -- are facing somewhat greater risks.

From the Q&A session

Providing information about the expected path of policy helped to ensure that long-term interest rates and other asset prices did not build in a projected pace of tightening that was more rapid than the Committee itself anticipated, and the statement's focus on the conditionality of future policy actions emphasized the ongoing need for both policymakers and financial market participants to respond to economic news. In retrospect, the clear communication of policy provided notable benefits, in my view, by increasing the effectiveness of monetary policy while minimizing unnecessary volatility in financial markets.

But if the federal funds rate path becomes less predictable than it has been over the last 14 FOMC meetings, does that mean that the Committee must retreat to saying little beyond announcing its rate decisions when they are made? In my opinion, no. My sense is that there will still be room for forward-looking communications that entail more conditional statements about how policy is likely to react to evolving economic fundamentals, in contrast to the less conditional statements common since 2003.

It is clear that communication by policymakers, whether in the statement itself or in speeches or testimony, can be quite powerful. Even when carefully crafted, it risks the interpretation of a pre-commitment to action when that is not the intent. I recognize forward-looking language from a central bank can help to anchor markets, but, absent unusual circumstances, I wonder whether the resulting sense of policy certainty that can be conveyed is appropriate given the fact that often the next move of the Committee is not a foregone conclusion. Is there a risk that such communication will limit the flexibility of monetary policy setting? Or, conversely, could such communication produce policy inertia? I do not know the answers to these questions but they do nag at me.

The sentences about where policy is likely to go reflect the Committee's best estimates.  And best estimates, of course, are always subject to revision.  So I want to emphasize that, in my view, the Committee must always have the flexibility to respond to changing circumstances.

Historically, the Federal Reserve has not provided forward guidance for fear that it would lock itself into a policy stance that might, under new information, no longer be appropriate. In principle, there is no reason why the Fed cannot explain the nature of the conditionality and convey the view that policy guidance depends on information available at the time guidance is offered.

I want to note that our recent post-FOMC meeting statements came with a caveat that reads: “The Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.” To me, this language means that while we’re working to gradually remove the remaining policy accommodation in this time of elevated inflation risks, we also must watch carefully for unexpected developments in the economy, especially how individuals and businesses respond to the continuing rise in energy costs.

In this regard, I think the policy tactics followed by the FOMC over recent years will be helpful. We have moved rates higher gradually and announced our intentions in a manner that underscores that these intentions depend on the economic outlook. The announcement should enable market participants to get a more accurate view of our intentions sooner and build them into financial market conditions, which then feed back on spending. This transparency, together with the gradual trajectory of policy actions, should help us to get a better and more timely fix on the effects of our actions than in the past.

Providing guidance on likely future policy actions is a significant departure for the Federal Reserve. Historically, the Fed and other central banks have been reluctant to provide forward guidance out of a concern that doing so would limit freedom of action in the event of new information indicating that changed circumstances called for a change in policy direction.

Experience to date with forward guidance has been successful but in my opinion it is too early to tell whether this departure will be successful in the long run. The matter will be tested when changed circumstances require policy action that differs from forward guidance.

I have long been of the view that you really need to think of Fed policy on the whole as being driven by incoming data...I would think it would be misleading to the markets to provide firm guidance about the future of policy.

The future path will be conditional on future information that cannot itself be predicted. Attempts to provide specific forward-looking guidance will prove inaccurate and even misleading to the market. Moreover, the Fed could create a credibility problem for itself if forward guidance is too specific.

Although statements in recent years reflect considerable continuity, changes usually come as a surprise to the market, and the initial meaning of new phrases has not always been clear. For that reason, I think the FOMC could improve clarity, especially when policy direction changes, by agreeing in advance on stock phrases to describe different situations.

It is neither usual nor necessary that the Fed, or any other central bank, announces its longer term course in its policy statements.