Anchors Aweigh? The Effect of Communicating Forecast Uncertainty

Résumé

This study investigates how different methods of communicating monetary policy uncertainty affect public understanding and expectation formation. Using two complementary experiments, we assess both interpretation and behavioral responses to forecast uncertainty. In Part A, 300 members of the UK public and 75 experts evaluated alternative forecast media—such as point forecasts, fan charts, box-and-whisker plots, and speedometers—under unconditional and conditional settings. Fan charts were well-understood, performing comparably to point forecasts in conveying expectations but better at conveying uncertainty. Part B uses a dynamic online experiment with 2,000 UK participants to test how uncertainty communication shapes inflation expectations through time. Central bank “fan” forecasts dampened the de-anchoring of expectations following forecast errors, particularly for large “unlucky” misses, acting as an informational “insurance policy.” Point forecasts anchored expectations more strongly initially but fostered overconfidence and greater dispersion after shocks. Communicating uncertainty widened perceived forecast ranges toward realistic levels without materially confusing participants. Overall, uncertainty communication enhances resilience of expectations to forecast errors, suggesting that abandoning fan charts—as some policy reviews have proposed—could weaken credibility. Instead, fan-style visualizations should be retained but paired with clear narrative explanations to balance clarity and transparency in central bank communication.