In the past, the Fed would often provide a rate-cut path and conditions, giving everyone plenty of expectations. Now, it looks like it’s watching how the market reacts afterward rather than catering to the market to manufacture consensus. So what will happen to market conditions going forward?
Your understanding hits the mark exactly. This is the most fundamental shift in the Fed’s communication style this time: moving away from the past “caretaker-style forward guidance” back toward a more classical “black-box, data-dependent” approach.
I. In the past (the Bernanke/Yellen/Powell era): What is “caretaker-style guidance”?
Over the past decade or so (especially from the post-2008 subprime crisis period through the Powell era), the Fed relied heavily on forward guidance to manage market expectations:
1) Spell-it-out paths: Through each quarterly dot plot, it told Wall Street directly, “We expect to cut rates 3 times this year, 4 times next year, and in the end the neutral rate will land at 2.5%.”
2) Spell-it-out conditions (thresholds): It set clear indicator red lines—for example, “As long as the unemployment rate stays below 4.5% and inflation falls back under 2.5%, we will reduce rates by 25 basis points each time, in a paced manner.”
3) Catering to the “Fed put”: Wall Street didn’t even have to work hard. As soon as there was a sharp sell-off and liquidity tightened, Fed officials would “come through to reassure” in subsequent public remarks—feeding the market the rescue-market script in advance, for fear of triggering a blow-up in financial markets.
Result: The market got used to being “fed,” and became accustomed to front-running and pricing the Fed’s actions 3 to 6 months ahead.
II. Now (the Wos(h) era): Why do we say it’s “not catering to the market”?
The core philosophy Wos(h) demonstrated at the Jackson Hole symposium was that the Fed has been captured by the market for too long—forward guidance has completely failed and has even turned into an accomplice to the inflation comeback.
Discarding preset scripts (No Pre-commitment):
He no longer draws a roadmap for the market—like “rate cuts in September, then again in November”—and instead makes it clear that “every future FOMC meeting is a separate, life-or-death decision (meeting by meeting).”
It won’t commit in advance to rate cuts, and even keeps the possibility of additional rate hikes at any time depending on the latest inflation data open.
Your understanding hits the mark exactly. This is the most fundamental shift in the Fed’s communication style this time: moving away from the past “caretaker-style forward guidance” back toward a more classical “black-box, data-dependent” approach.
I. In the past (the Bernanke/Yellen/Powell era): What is “caretaker-style guidance”?
Over the past decade or so (especially from the post-2008 subprime crisis period through the Powell era), the Fed relied heavily on forward guidance to manage market expectations:
1) Spell-it-out paths: Through each quarterly dot plot, it told Wall Street directly, “We expect to cut rates 3 times this year, 4 times next year, and in the end the neutral rate will land at 2.5%.”
2) Spell-it-out conditions (thresholds): It set clear indicator red lines—for example, “As long as the unemployment rate stays below 4.5% and inflation falls back under 2.5%, we will reduce rates by 25 basis points each time, in a paced manner.”
3) Catering to the “Fed put”: Wall Street didn’t even have to work hard. As soon as there was a sharp sell-off and liquidity tightened, Fed officials would “come through to reassure” in subsequent public remarks—feeding the market the rescue-market script in advance, for fear of triggering a blow-up in financial markets.
Result: The market got used to being “fed,” and became accustomed to front-running and pricing the Fed’s actions 3 to 6 months ahead.
II. Now (the Wos(h) era): Why do we say it’s “not catering to the market”?
The core philosophy Wos(h) demonstrated at the Jackson Hole symposium was that the Fed has been captured by the market for too long—forward guidance has completely failed and has even turned into an accomplice to the inflation comeback.
Discarding preset scripts (No Pre-commitment):
He no longer draws a roadmap for the market—like “rate cuts in September, then again in November”—and instead makes it clear that “every future FOMC meeting is a separate, life-or-death decision (meeting by meeting).”
It won’t commit in advance to rate cuts, and even keeps the possibility of additional rate hikes at any time depending on the latest inflation data open.
