It’s the year of ‘forward guidance’

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FORWARD guidance will be the most over-used phrase of 2014, according to a senior figure at Coutts.

Alan Higgins, the chief investment officer for the UK at Coutts, said that officials at both the US Federal Reserve and Bank of England are “going out of their way” to avoid increasing interest rates.

According to Mr Higgins, this is forcing them to make enhancements to their forward guidance on when rates will go up.

Mr Higgins said in a blog: “When the Fed did finally cut its monthly bond purchases by $10bn, US markets forgot all about tapering fears and rallied strongly. Why? Because of enhanced forward guidance, with the Fed essentially moving further away its goalposts for when it will raise rates.

“The statement from the Fed’s December meeting also noted that it would not raise rates even if unemployment fell below the 6.5 per cent threshold. This reflected both ultra-low inflation and the low participation rate in the US labour market.

“We expect Bank of England Governor Mark Carney to also re-iterate his version of forward guidance, potentially moving the Bank’s current unemployment threshold of 7.0 per cent down to 6.5 per cent, bringing it in line with the Fed.”

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