successor ” [ 16 ]. i ’ m not sure it would cut much ice with parliament ’ s treasury committee if i said i was voting not on the basis of what was going on in the economy right now but instead because of some guidance a few years ago by an earlier mpc. the interpretation of guidance and the potential costs of mistaking the conditional as unconditional i picked out a moment ago a couple of key bits of guidance by the mpc. there were several others. but all of them contained the message that the outlook for interest rates would be dependent on that for the economy and inflation at the time. however, i think it ’ s clear from the reaction to these episodes that the points we were trying to get across – including this critical point about conditionality – were not universally understood. one particular problem was that, in response to the september 2013 guidance, many commentators appeared to see the 7 % unemployment threshold as a sufficient, not just a necessary condition for the tightening policy. we would apparently be “ forced ” to raise interest rates if unemployment fell below this level, whatever the outlook for inflation at the time. as for the general point about conditionality, it was only two days after the february 2014 inflation report that the bbc said : “ what is forward guidance? it is making a promise about the future, particularly about future interest rates. ” [ 17 ] and despite the intervening ( and frequently re - iterated ) point that our statements about future policy were “ an expectation, not a promise ”, a recent newspaper comment, published only a couple of months ago, referred to the “ many promises [ made by the mpc ] to raise interest rates ”. there may be several reasons for this. one must be the very fact that there are these two distinct forms of communication – one much closer to a “ promise ” than the other – yet economists use word the “ guidance ” for both, distinguishing them only with the ( slightly arcane ) classical descriptors “ delphic ” and “ odyssean ”. this kind of jargon can obscure more than it clarifies and one can quite understand why people might muddle them up [ 18 ]. more generally, it ’ s possible that central banks probably don ’ t help themselves with language which, while it may seem clear to people whose job it is to think about these things, is unclear or ambiguous to others. to the economist author the meaning of a phrase “ we expect the appropriate level of

keep interest rates very low – almost regardless of how things turn out. it ’ s a means of easing monetary conditions, and specifically of lowering longer - term real interest rates, when the outlook for inflation is weak but the immediate policy rate is constrained by the lower bound ( and if other alternatives like qe are for some reason unavailable or ineffective ). if you ’ re able to convince people that, even in the event of a positive shock to inflation in the future, you won ’ t raise interest rates, this can push up expected inflation, thereby reducing the real forward rate of interest and encouraging more demand today. this “ promise to be irresponsible ” [ 4 ] won ’ t necessarily be believed because, when the time comes, and if there were subsequently some significant rise in inflationary pressure, the policymaker will be tempted to go back on the earlier promise and respond by raising interest rates. the optimal policy is intrinsically “ time inconsistent ”. but if you can find a way of tying yourself to the policy in advance – like odysseus lashing himself to the mast of his ship – then this is in principle an effective way of easing monetary conditions, even when the policy rate itself can ’ t be lowered any further. it ’ s striking that this “ odyssean ” guidance has received much more attention in the economics literature – but, in the real world, and despite often being right up against the lower bound, central banks have used it only rarely. this may be because, in practice, it ’ s quite difficult to make credible commitments of this sort ( and because central banks have also been able to use qe ). whatever the reason, most “ forward guidance ” has been of the “ delphic ”, more conditional form. yet my impression is that outside observers can sometimes mistake one for the other : the “ if ” clause is forgotten, or downplayed, and purely conditional statements somehow get interpreted ( or rather misinterpreted ) as hard commitments. it ’ s not entirely clear why this is the case. it may be quite a deep - seated tendency. some psychological research demonstrates that people can misconstrue “ if … then ” statements, particularly if they ’ re fairly abstract. it may also be wishful : because people don ’ t like uncertainty and would therefore prefer there to be some fixed path of interest rates set in advance, perhaps they ’ re prone to believe that this is what they ’ re being