The FED's forward guidance (part one)

The forward guidance of a central bank, also known as the style the central bank uses to communicate its monetary policy to investors, is one of the most important market event a forex trader needs to know. Understanding in advance what the central bank wants to say about its future moves is fundamental to build up a succesful trading strategy. The use of forward guidance as a monetary policy tool is relatively new and the Federal Reserve has had a long-standing commitment to communicate regularly with investors upon its monetary policy. Some communications are required by the FED’s statute, while others are deliberately sent out by the Fed in order to increase the transparency of its monetary policy.

The most important and famous communication tool used by the FED is the official statement, which, since 1994, has been issued to announce FOMC decisions after every meeting. Statements summarizes the FOMC’s judgment about the appropriate conduct of monetary policy over the intermeeting period and provided guidance about the factors that the Committee will consider in setting policy as economic and financial developments evolve. The post-meeting statements also indicate which FOMC members voted for an action, and which members, if any, dissented from it. Sometimes, the FOMC also issues broader statements that represent the consensus of almost all participants.

Detailed minutes of FOMC meetings are released three weeks after each meeting. These documents, as written on the FED’s website “cover all policy-related topics that receive a significant amount of attention during the meeting. They describe the views expressed by the participants, the risks and uncertainties attending the outlook, and the reasons for the Committee’s decisions. The minutes can help the public interpret economic and financial developments and better understand the Committee’s decisions. As an official record of the meeting, the minutes identify all attendees and include votes on all authorized policy operations”.

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