Current Issues in Forward Guidance

IMF Notes, August 26, 2026

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Current Issues in Forward Guidance

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Bibliographic details

• Authors: Tobias Adrian
• Published: August 26, 2026
• Series: IMF Notes
• DOI: https://doi.org/10.5089/9798229056717.068

Core findings

• Forward guidance, or forward-looking monetary policy, is an essential part of policymakers’ toolkits, yet there is a need to carefully define its scope.
• Two forms of forward guidance exist with a clear distinction between them:
  • explicit commitments about the future path of the monetary policy stance, and
  • communication about forecasts and the monetary authority’s reaction-function.
• Commitments to future rate paths designed for effective lower bound conditions can become costly in an environment marred by supply shocks, as seen during the postpandemic inflation period.
• Communication about the future path of policy rates should be state dependent and embedded in frameworks organized around clear objectives and risks.
• Grounding communication on specific scenarios can help convey how a particular policy mix would adjust as a result of varying combinations of inflation outcomes, demand shortfalls, and indicators of financial stress.
• Proper scenario-based communication can preserve monetary transmission, anchor expectations, and bolster accountability without creating artificially compressed market volatility or unnecessary constraints on future policy.
• Communicating risks adequately and clearly is key to preserving proper risk-taking incentives of financial institutions.

Policy implications and recommendations

• Distinguish between commitment-based forward guidance and reaction-function communication when designing communication strategies.
• Avoid rigid commitments to future rate paths that can be costly under supply-shock environments; prefer state-dependent guidance.
• Embed forward guidance within frameworks that specify clear objectives and identify key risks.
• Use scenario-based communication to illustrate how policy would respond to combinations of:
  • inflation outcomes,
  • demand shortfalls, and
  • indicators of financial stress.
• Ensure communications do not artificially compress market volatility or impose unnecessary constraints on future policy decisions.
• Communicate risks clearly to preserve appropriate risk-taking incentives among financial institutions.

Content in this bundle

• Current Issues in Forward Guidance; IMF Note No. 26/08; August 2026
  • Current Issues in Forward Guidance; IMF Note No. 26/08; August 2026 (Markdown version)
  • Current Issues in Forward Guidance; IMF Note No. 26/08; August 2026 (PDF)