Mervyn King Is Not a Great Fan of Forward Guidance

The transcript discusses the Federal Reserve's challenges in maintaining a predictable reaction function amid low inflation and economic recovery. It critiques the concept of forward guidance, emphasizing the need for clarity in how the Fed responds to economic changes rather than predicting future interest rates.

What is the main challenge the Federal Reserve faces in maintaining the 2% inflation target?

• High inflation rates

• Uncertainty in economic models

• Lack of public support

• Political interference

Why has the Fed's reaction function become less predictable?

• Due to changes in leadership

• Because inflation has stayed low

• Because of economic recovery signs

• Due to high inflation rates

What is the critique of forward guidance mentioned in the video?

• It provides too much certainty

• It is not effective in predicting future interest rates

• It leads to increased market volatility

• It is too complex for the public to understand

What is the suggested approach instead of forward guidance?

• Reducing market interventions

• Increasing public communication

• Creating certainty about the reaction function

• Predicting future interest rates

What is the main focus of the Fed's reaction function according to the video?

• Predicting future economic conditions

• Maintaining a high level of market intervention

• Responding to economic events as they unfold

• Setting fixed interest rates