2023 was a year that lessened the stature of central bank forward guidance. Forward guidance is a tool used by central banks to communicate monetary policy projections. Historically, markets viewed this messaging in high regard as it often tied into relatively accurate outcomes. This year, forward guidance regularly misaligned with incoming economic data that includes the ECB and Federal Reserve alike. The resultant impact is one of increased volatility while creating doubt around the central bank’s credibility. Many of the global central banks now place emphasis on ‘data dependency’ to assist in outlining an accurate rate path.
