A senior Federal Reserve official has called for a reassessment of the central bank’s communication strategy, joining voices urging a rethink of so-called forward guidance used to shape investor expectations. Fed Governor Chris Waller warned that commitments made during the pandemic to hold interest rates steady contributed to the worst inflation surge in decades by constraining policymakers’ flexibility.

Forward guidance entails central bankers signaling their future policy intentions to influence longer-term borrowing costs. Waller said this approach “tied the hands” of the Federal Reserve throughout 2020 and 2021, resulting in delayed interest rate increases that allowed inflation to escalate unnecessarily. In prepared remarks delivered in Rome, Waller noted that the Fed maintained near-zero rates even as inflation rapidly exceeded the 2 percent target and unemployment rates declined sharply.

Waller’s comments build on recent calls from Kevin Warsh, who assumed the Fed chairmanship in May and has criticized forward guidance as having “compounded” the central bank’s policy mistakes. Last month, Warsh established a task force charged with reassessing how the Fed communicates policy decisions to markets and the public. The group’s findings are expected before year-end.

Under Warsh’s leadership, the Federal Open Market Committee (FOMC) has already signaled a departure from traditional communication tools. At his first meeting as chair, Warsh opted not to submit a forecast to the FOMC’s “dot-plot” projections, which investors typically use to gauge the path of future interest rates. The committee also removed longstanding language from its post-meeting statements that had implied the next rate move would be downward, signaling a shift toward providing less explicit forward guidance.

While this reduced clarity has raised concerns among investors about increased market volatility, Waller acknowledged that forward guidance has sometimes expedited the transmission of monetary policy. For instance, when the Fed abandoned its promise to keep borrowing costs low in September 2021 and indicated an upcoming rate hike, investors promptly pushed up the yield on two-year U.S. Treasury securities, reflecting rapid market adjustment.

Inflation in the United States rose above 7 percent in 2022, more than triple the Fed’s long-term target, amid supply chain disruptions and expansive fiscal and monetary policies. The central bank’s communication methods, which seek to manage market expectations and economic outcomes, are now under scrutiny as officials weigh how to balance transparency with the need for flexibility in an evolving economic environment.