Dynamic concept Monetary policy U. S.

Feedforward strategies in forming monetary policies

“Feedback” and “feedforward” are two common approaches in designing control systems. “Feedback” is a mechanism in which process information about the past and the present is used to influence the behavior of the same process at the present and in the future. For example, a rising inflation data is used as feedback in forming monetary policy to raise interest rate so that the inflation will decrease and stabilize in the future. Feedback, as a part of chain of cause-effect, forms a closed-loop together with control signal and process under control. When the control strategy is properly designed, desired process behavior and process stability can be achieved.

“Feedforward” is a predetermined control signal without responding to how the process reacts; it is in contrast with a feedback which adjusts the output to take account of how it affects the process. Feedforward is a part of an open loop. The design of the predetermined control is based on the knowledge of the process and external disturbances. The “forward guidance” the Fed adopted since 2008, is a feedforward control strategy. Feedforward has the benefit to exert control in advance, compared with feedback adjusting control based on control-effect usually involving a time delay. Feedforward is especially beneficial when the process under control has a large time delay between control and its effect.

Employment and inflation are two mandates for the Fed under the law, so they are the two processes of interest to be controlled. Interest rate and money supply are two primary tools available for the Fed to influence employment and inflation. It typically takes 12 – 18 months for a monetary policy to fully be transmitted to economic activities.

For feedforward to be dependable, the control effect on the system should be known as once a control signal has been sent, it cannot be further adjusted; any corrective adjustment must be by way of a new control signal. The evolving of the Fed’s forward guidance showed that the Fed has continued learning and adjusting when new information becomes available. Here is a review of the forward guidance from the beginning up to July 2014.


The Fed introduced forward guidance when the control using federal funds rate became saturated as the policy rate reaching the zero bound. The Fed’s forward guidance added a time dimension to its portfolio of monetary tools and enhanced the policy flexibility. At the beginning, the forward guidance was relatively simple and was date-based. In December 2008, the Fed said it expected that conditions would warrant keeping the federal funds rate near zero for “some time”. As the economic recovery disappointed, the periods before raising federal funds rate was described increasingly specific and longer over time – “some time” changed into “an extended period” at policy meeting in March 2009, and then to “mid-2013” in August 2011, then “late 2014” in January 2012, then “mid-2015” in September 2012.

The date-based guidance had the virtue of simplicity, but it lacked an explicit connection to the economic conditions which are really the goal of monetary policy.


In December 2012, the Fed reformulated its feedforward into a condition-based guidance by indicating that the federal funds rate would remain near zero until the jobless rate fell to at least 6.5% in the context of fulfilling its inflation mandate. The Fed late emphasized that these numerical criteria were not triggers for raising the federal funds rate, and any decision to begin removing accommodation would be based on a wide range of indicators.

Recently the jobless rate was found to be noisy and was not able to fully reflect the labor market condition. Early this year the jobless rate dropped below 6.5% but other indictors showed large labour slack.

Comprehensive conditions-and-date-based

In March 2014, Fed started to shift to a comprehensive guidance – describing the economic conditions the officials will consider when deciding to raise federal funds rate and a qualitative time frame. The policy statement said that the Fed “will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.” The Fed also said officials consider it “likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends …”


[1] Monetary Policy and the Economic Recovery, Janet L. Yellen, speech at the Economic Club of New York, New York, New YorkApril 16, 2014.

[2] FOMC statement from December 2008 to July 2014.

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