The divergence underscores a new reality for central banks. Inflation, exchange rates and interest-rate expectations have become harder to manage in an era of geopolitical shocks, volatile energy prices and rapidly shifting market sentiment, forcing policymakers to reconsider not just what they do, but how they communicate what they might do next.
New Fed Chair Kevin Warsh offered an early indication of that shift when he declined to submit his own interest-rate projection at his first Federal Open Market Committee meeting on June 16-17.
The Fed left its benchmark policy rate unchanged at 3.75 percent, but its dot plot turned more hawkish. The median projection for the federal funds rate at the end of this year rose to 3.8 percent from 3.4 percent in March.
Of the 18 officials who submitted projections, nine expected at least one rate increase this year. Warsh was not among them.
At his June 17 press conference, Warsh said the Fed would review its communication framework, including the future of the dot plot. The central bank also removed forward-guidance language from its policy statement regarding the timing and extent of future policy adjustments.
The dot plot shows where FOMC participants believe interest rates should stand in coming years. Since its introduction in 2012, investors have treated it as one of the most important guides to the future path of U.S. monetary policy.
The tool has obvious advantages.
It improves transparency by revealing the distribution of policymakers' views and helps align market expectations with central bank intentions.
But the dots are conditional projections, not promises.
Markets nevertheless tend to interpret them as commitments, making bond yields, currencies and equities highly sensitive to even small shifts in the chart.
That transparency can become a constraint.
Once investors anchor themselves to a projected rate path, changing economic conditions can force central banks into an uncomfortable choice: surprise markets or appear to be walking back earlier guidance.
The Bank of Korea is moving in the opposite direction.
The study will analyze intraday movements in interest-rate swaps, government bond futures and KOSPI 200 futures on policy-decision days to measure how BOK communication affects financial markets.
Researchers will focus on two tools: conditional forward guidance that shows the three-month rate views of six Monetary Policy Board members, excluding the governor, and a six-month dot plot in which seven board members each submit three projections for the base rate.
The BOK introduced its dot plot at the Feb. 26 policy meeting.
After its May 28 meeting, 19 of the 21 dots were positioned above the prevailing base rate.
Markets interpreted the chart as a relatively clear signal that policymakers were leaving open the possibility of rate increases in the second half of the year.
The exchange-rate backdrop has made that communication challenge even more delicate.
The won averaged 1,529.15 per dollar through June 22, its weakest monthly average since February 1998, when it averaged 1,626.7 during the aftermath of the Asian financial crisis.
The currency weakened further on June 23, ending Seoul's daytime session at 1,538.90 per dollar as the Fed's hawkish stance continued to pressure emerging-market currencies.
That has kept markets intensely focused on the interest-rate gap with the United States and the Fed's policy trajectory.
The BOK's challenge has also become more complex.
Oil prices and a weaker currency have revived inflation risks, while housing prices and household debt remain major domestic concerns.
That increases the need to manage expectations before any actual policy move is made.
BOK Governor Shin Hyun-song has long studied the role of communication in monetary policy.
During his tenure at the Bank for International Settlements, he examined how central bank signals influence market pricing and investor behavior.
At his parliamentary confirmation hearing on April 15, Shin indicated the BOK would maintain its current framework for the time being, arguing that newly introduced communication tools should be evaluated after accumulating sufficient experience.
Other major central banks have already migrated toward more flexible language.
The Bank of England has adopted similar language. Following its June 18 meeting, policymakers said decisions would be made meeting by meeting, based on incoming data covering inflation, wages, growth, labor-market conditions and inflation expectations.
The Bank of Japan does not publish a dot plot at all. It communicates through economic forecasts and the governor's press conferences.
After raising its short-term policy rate to 1 percent on June 16, the BOJ employed deliberately conditional language, saying it would adjust the degree of monetary accommodation if the economy and prices evolve in line with its outlook.
The evolution reflects a common lesson.
Central banks still want to guide markets, but they increasingly want to avoid being trapped by a predetermined path.
The BOK is effectively running an experiment by combining Fed-style dot plots with conditional forward guidance. Its new study is designed to measure how that mix influences expectations for interest rates, the won and domestic equities.
As the Fed debates the future of the dot plot while the BOK tests its newest communication tools, monetary policy is becoming as much about managing words as managing rates.
Copyright ⓒ Aju Press All rights reserved.