When commitments are misplaced and/or misunderstood

Narayana Kocherlakota is sorely missed at the FOMC. To compensate, his Bloomberg View columns should be widely read, for they provide great guidance. From his latest, on interpreting the “dot plot”: The Fed’s Misunderstood Dots

Notice that I have not said that the Fed should provide a collective forecast for its short-term interest rate target. Policymakers’ forecasts are inevitably seen as something akin to commitments. The Fed should be committed to delivering particular inflation and employment outcomes, not to a specific path for interest rates.

Monetary policy would be much better if only that point was well understood!

Update: Bullard would certainly gain from reading Kocherlakota:

Bullard said he’s getting “increasingly concerned” about giving forward guidance through projections of how fast interest rates will rise, also referred to as the dot plot. The forecasts probably contributed to the market sell-off at the start of the year, and “I’ve even thought about dropping out unilaterally from the whole exercise,” he said.

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