Forward guidance can 'helps secure economic recovery'
The governor of the Bank of England set out how forward guidance could "help to secure the recovery that is now in train" in a letter to the Chancellor.
First, it provides greater clarity regarding the Monetary Policy Committee's (MPC) view of the appropriate trade-off between the horizon over which inflation is returned to target and the speed with which growth and employment recover.
Second, it reduces uncertainty about the future path of monetary policy, in particular helping to avoid the risk that market interest rates rise prematurely as the recovery gains traction.
Third, it gives monetary policy greater scope to explore the potential sustainable level of employment and output without putting price and financial stability at risk.