# Letter to the Editor: Fedspeak Isn’t Helping Markets–or the Fed 

It seems to box the central bank into following bad policy.

August 25, 2026 • Commentary 

By [Jai Kedia](https://www.cato.org/people/jai-kedia) 

This article appeared in [*Wall Street Journal*](https://www.wsj.com/) on August 25, 2026.

Donald L. Luskin is correct in his op-ed “[Warsh Is Wise to Ditch the Dots](https://www.wsj.com/opinion/warsh-is-wise-to-ditch-the-dots-77ebb5ab?mod=article_inline)” (Aug. 17) that the [Federal Reserve](https://www.wsj.com/topics/subject/federal-reserve) should abandon forward guidance, and the examples he provides of its negative outcomes are persuasive. Some may counter that Fedspeak isn’t meant to provide indefinite guidance. Rather, the central bank’s public statements serve only as the Fed’s best assessment of the near-term macroeconomic trajectory. Moreover, such information provides immediate clarity to markets, they contend, especially during turbulent episodes.

On that front, too, recent examples show forward guidance to be counterproductive. In [September 2025](https://www.cato.org/blog/economic-data-does-not-support-fed-rate-cut), rising inflation justified keeping [interest rates](https://www.wsj.com/topics/subject/interest-rates) unchanged or even implementing a minor increase. Yet because the Fed had aggressively promised a rate reduction, it seemed to feel obligated to cut; its own forward guidance seemed to box it into a corner, forcing bad policy.

Another misalignment occurred this year with the Summary of Economic Projections. In March, despite inflation running significantly above the target, no Fed policymaker anticipated a rate hike for the rest of this year—even though private markets had already begun pricing one in. By June the committee’s forecasts abruptly shifted toward an increase, trailing the market signals by months. This was despite no material change to the underlying inflationary threats of tariffs, war or excessive fiscal spending. Market indicators provided a sharper macroeconomic assessment than Fedspeak.

The Fed should eliminate forward guidance and instead publish a clear, mathematical reaction function. This formula would automatically tie interest rate targets to economic indicators, offering built-in market predictability through an objective rule.

##### About the Author 

[![jai-kedia-cropped.jpg](/sites/cato.org/files/styles/author_picture/public/2023-07/jai-kedia-cropped.jpg?itok=In6dB8gW)](/people/jai-kedia) 

##### [Jai Kedia](/people/jai-kedia)

Research Fellow, Center for Monetary and Financial Alternatives, Cato Institute

[ 

](https://x.com/jaikedia)