When did the fed start putting so much emphasis on forward guidance? My impression is that it has always offered delphic guidance as a way to smoothly transition between monetary policies but that only in the last few years it has really started emphasizing its intentions as a independent tool to influence the economy.
The problem is that they are only willing to use it independently from actual monetary policy during easing. Regarding tightening Bernanke has done a poor job of using asset purchases and guidance separately.
Imagine if an activist investor started announcing his intentions to reform a company before buying a piece. By the time she could get her hands on a decent chunk, the new information would for the most part priced in and all her work, even if it had a positive result on the company wouldn’t be very profitable. Add to this that there is no uncertainty regarding the activists ability to effect change on the company and its pretty much impossible for her to get anything done anymore.
Of course, the fed is very different from a hedge fund. Still, its a similar phenomenon. In the last hundred or so years, it has built up a lot of credibility as an institution. Maybe now that its having some difficulty accomplishing its mandates it’s time to draw down on that credibility a bit. Throw everyone a head fake and announce the continuation of easing through next year just as they start to back off the asset purchases. After six months Bernanke can announce what everyone has begun to suspect and say, “See? That didn’t hurt so much.” Its the only way to get investors and whoever is making the business plans at the huge corporations to focus on the numbers that really matter, GDP growth and unemployment, and ignore those that really aren’t very relevant to their businesses, money creation.