Former Federal Reserve Vice Chairman Richard Clarida said the central bank's tradition of steering market expectations through signals is still alive. The Fed decided on Wednesday to keep interest rates unchanged, in line with market expectations.
Although Chairman Kevin Warsh wants to abandon the practice of forward guidance, "I don't think we're going to be in a world with no forward guidance at all," said Clarida, who now serves as global economic adviser at PIMCO.
"It may take a different form, possibly relying more on officials' speeches and comments and less on" the so-called dot plot, Clarida said.
"The decision today was not a surprise, and that itself is because we had guidance beforehand from Jefferson and Williams," Clarida said in an interview. He was referring to remarks by Vice Chair Philip Jefferson and New York Fed President John Williams after the Fed's September rate hike.
Those two officials helped dampen investor expectations for another 25 basis point increase this month, and the Fed's decision this time was consistent with their stance of advocating a slower pace of action.
Clarida said the 10-2 vote leaves the Federal Open Market Committee under considerable pressure as it heads into its final meeting of 2026.
"The fact that they did not hike today does increase the pressure on them to act in December," Clarida said. He added that Warsh had already earned considerable credibility for the Fed by choosing to hike when not everyone at the time believed an increase was necessary. He expects the Fed to raise rates in December and then possibly move again in March next year.
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