forward guidance

Forward guidance is a communication tool used by central banks to influence economic expectations by providing signals about future monetary policy actions, such as interest rate changes. By outlining their plans or outlooks, central banks help households, businesses, and investors make informed decisions, reducing uncertainty. For example, if a central bank indicates it will keep rates low for an extended period, it encourages borrowing and investment, which can stimulate economic growth. Essentially, forward guidance is a way for central banks to steer economic activity by shaping expectations about the future.