richard w fisher : forward guidance ( with reference to monty python, odysseus, apollo, paul fisher, deng xiaoping and mario draghi ’ s old man ) remarks by mr richard w fisher, president and chief executive officer of the federal reserve bank of dallas, before the asia society hong kong center, hong kong, 4 april 2014. * * * the views expressed by the author do not necessarily reflect official positions of the federal reserve system. thank you, alice ( mong ). it is always an honor to speak before the asia society anywhere in the world but especially here in hong kong, one of my favorite cities. i was in hong kong during the transition ceremonies in 1997 when the white house called to ask if i would become deputy u. s. trade representative. it was a position in which i served for four years under president clinton, and it put me on the path to high - level public service. that and my love for the spectacular food here have cemented hong kong in my heart. thank you for inviting me to stop here on my way to beijing. i want to talk today about “ forward guidance ” in monetary policy. it is the subject du jour of central bankers. we ’ ve seen it popularized by the bank of canada and bank of england, and it figured prominently in the statement recently released by the federal open market committee ( fomc ) of the federal reserve after our meeting of march 18 – 19 and again during the post - meeting press conference of the fed chair, janet yellen. it is front and center on the agenda of the fomc. to understand forward guidance and its prominence in current discussions within monetary policy circles, it helps to retrace recent history. adieu quantitative easing to encourage economic recovery from the debacle of the financial crisis of 2007 – 09, the fomc cut interest rates to near zero. the fed introduced an array of special lending facilities during the most panicked stage of the crisis. these credit and liquidity programs were largely self - liquidating as market functioning improved. but still being “ zero bound, ” we embarked upon a program of massively expanding the fed ’ s balance sheet, referred to internally as “ large - scale asset purchases ” and popularly known as quantitative easing ( qe ). by buying copious quantities of longer - term u. s. treasury bonds and mortgage - backed securities ( mbs ), our balance sheet has grown from slightly under $ 900 billion prior to

on the post - liftoff path of the funds rate : “ the committee currently anticipates that, even after employment and inflation are near mandate - consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run. ” as a former practitioner, i can tell you that market operators prefer odyssean guidance to delphic guidance, and within the odyssean model, tend to prefer inflexible, calendar - based guidance to guidance that ’ s either conditional or qualitative. life in my former incarnation would naturally be much more pleasant if i could dial in the specific dates and levels of interest rate movements. but as a central banker, i am haunted by a comment made by winston churchill in 1926, shortly before things began to unravel in the global financial bis central bankers ’ speeches markets. speaking at the waldorf hotel in london, he said : “ in finance, everything that is agreeable is unsound and everything that is sound is disagreeable. ” 5 i worry that the predictability of calendar - based commitments can quite possibly be unsound in two key dimensions. first, the quantitative moorings may be misplaced – especially given shifts in economic relationships following the worst downturn since the great depression. second, i question if it is sound policy to remove all uncertainty or volatility from the market. i wonder whether being totally predictable may, at best, lead to a false complacency that can too easily be upset should we need to change course. at its worst, i fear calendar - based commitments can lead, perversely, to market instability by encouraging markets to overshoot, as they appear to be doing in some quarters at present. i say “ calendar - based commitments, ” even though the fomc has tried to couch its calendar - based guidance in delphic language. the problem is that guidance intended to be delphic is, in practice, often given an odyssean interpretation. whether because of wishful thinking by market operators or because of policymaker inertia ( it ’ s easier to stick with the previously announced plan than to explain a departure from that plan ), the delphic undergoes metamorphosis and becomes odyssean. thus, i wonder if anything beyond the delphic is practicable, as much as i might like to set our compass on autopilot. but even expressing