Editorial Board
Keep It Simple, Central Bankers
Central banks should give investors information and explain their thinking, but they shouldn't tie policy to specific indicators.
This week, the U.S. Federal Reserve and the Bank of England both made welcome moves toward more simplicity. Specifically, they recast the "forward guidance" they'd previously given investors about their intentions.
Both central banks have been surprised by unexpectedly rapid falls in unemployment. The Fed had previously promised not to start raising interest rates before unemployment in the U.S. had fallen to 6.5 percent. At 6.6 percent, it's almost there -- but the recovery is still weak and the Fed has no intention of raising rates for a good while yet. The Bank of England's unemployment threshold was 7 percent. That's probably already been reached, but the U.K. also will most likely need low interest rates for many months to come.