Three Uncomfortable Truths For Monetary Policy

Gita Gopinath in this speech says there are three uncomfortable truths for monetary policy:

This evening, I will focus on how to contend with high inflation by confronting what I will call three uncomfortable truths for monetary policy. 

• • The first uncomfortable truth is that inflation is taking too long to get back to target. This means that central banks, including the ECB, must remain committed to fighting inflation despite risks of weaker economic growth.
  • The second uncomfortable truth is that financial stresses could generate tensions between central banks’ price and financial stability objectives. Achieving “separation” through additional tools is possible, but not a fait accompli. 
  • The third uncomfortable truth is that going forward, central banks are likely to experience more upside inflation risks than before the pandemic. Monetary policy strategies and the use of tools like forward guidance and quantitative easing must accordingly be refined.