How Much Should Central Banks Talk? Fed Promised Low Rates

Central banks are like the grown-ups who control how much it costs to borrow money.

After a big money problem called the global financial crisis of 2007-09, many countries needed help.

Central banks saw that the usual way to help, lowering interest rates, had almost no room left.

So they started doing something new: telling everyone what they planned to do in the future.

This kind of talking is called 'forward guidance.'

In 2011, the Federal Reserve, the central bank of the United States, said it would keep rates near zero until at least mid-2013.

In 2012, it began publishing dots showing what its officials thought rates would look like.

Markets paid close attention and treated these words almost like a promise.

Economist Paul Krugman, who won the Nobel prize in 2008, called the idea a way to 'credibly promise to be irresponsible.'

The story asks how much, and how, central banks should talk about their plans.