Bank for International Settlements (BIS)

Evolving Approaches to Monetary Policy Communication in the Face of Uncertainty

The video examines how central banks are reshaping monetary‑policy communication as uncertainty spikes, emphasizing the need to keep inflation expectations anchored while remaining transparent about decision‑making. It notes that traditional tools such as fan charts convey the range of forecast uncertainty but lose clarity when the economy faces atypical shocks—war, pandemics, or tariff escalations. In those cases, banks are urged to supplement or replace fan charts with explicit alternative scenarios that map out how policy would react to divergent developments. The presenter stresses that publishing multiple response paths can signal flexibility without locking the institution into a single trajectory, a balance that avoids the market perception of a pre‑committed stance. Examples cited include the Federal Reserve’s “scenario‑based” statements during the COVID‑19 crisis and the ECB’s “forward‑guidance” adjustments amid trade tensions. For investors and businesses, clearer, scenario‑rich communication reduces surprise, improves risk‑pricing, and bolsters central‑bank credibility, suggesting that future guidance will likely blend probabilistic forecasts with conditional policy pathways.