Cadence Research · Reviewed 2026-07-30
What is forward guidance?
Forward guidance is a central bank's communication about how it may set policy in the future. It can describe a likely path for interest rates, but more often it explains the conditions that would justify changing policy. Good forward guidance helps people understand what policymakers are watching without committing them to a decision before the evidence arrives.
Why it matters
Guidance can move expectations even when the policy rate does not change. The wording around future decisions is often as important as the decision itself.
How it appears in official communication
Officials may say that decisions will be data dependent, that policy must remain restrictive for as long as necessary, or that they need greater confidence before easing. Changes in those conditions are meaningful.
A common misunderstanding
Forward guidance is not a binding promise. It is conditional communication that can change when the data, outlook, or risks change.
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Related guides
Primary sources
- Monetary Policy: What are its goals? (Federal Reserve)
- Monetary policy (European Central Bank)
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