Forward Guidance
Forward Guidance — How central bank language shapes term premium and front-end rate expectations before actual policy moves.
Definition
Forward Guidance refers to how central bank language shapes term premium and front-end rate expectations before actual policy moves. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Policy reaction functions move discount rates and liquidity; this concept is one of the levers or constraints. When how central bank language shapes term premium and front-end rate expectations before actual policy moves shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what forward guidance is saying. If how central bank language shapes term premium and front-end rate expectations before actual policy moves moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
Map the calendar, communication regime, and balance-sheet tools — words and paths both matter. Prefer a short written null hypothesis for Forward Guidance: what would falsify the current reading in the next window?