Reactions of real yields and inflation expectations to forward guidance in the United States

We study the impact of forward guidance used as an unconventional monetary policy tool at the zero lower bound of the policy rate on real and breakeven US Treasury yield curves. We find that explicit FOMC policy rate guidance announcements led to a significant reduction in real yields. By contrast, breakeven inflation rates were barely affected, if at all, suggesting that inflation expectations have remained well-anchored, and that explicit FOMC policy rate guidance has not adversely affected central bank credibility.
 
 
Key words: Monetary policy, central bank communication, policy rate guidance, real yields, inflation expectations.
JEL classification: E52, E58, G15.

Working paper no. 398