Economic theory suggests that it is useful for the Fed
to communicate the likely duration of any policy
shortfall. Monetary policy is in large part a process
of shaping private-sector expectations about the future
path of short-term interest rates, which affect
long-term interest rates and other asset prices, in
order to achieve various macroeconomic objectives
(McGough, Rudebusch, and Williams 2005). In the
current situation, the FOMC (2009) has noted that
it “anticipates that economic conditions are likely
to warrant exceptionally low levels of the federal
funds rate for an extended period.” Other central
banks have been even more explicit about the duration
of low rates. For example, the central bank
of Sweden has recently stated explicitly that it expects
to keep its policy rate at a low level until the beginning
of 2011. Rudebusch and Williams (2008) describe
how such revelation of central bank interest
rate projections may help a central bank achieve its
policy goals.