Making monetary policy is a humbling activity. In hindsight, the paths of inflation, real output, stock prices and exchange rates may have seemed preordained, but no such insight existed as we experienced it at the time. In fact, uncertainty characterised virtually every meeting, and our ability to anticipate was limited. From time to time, we made decisions on interest rates, some to move and some not to move, that we came to regret.
Yet, during the last quarter century, policymakers managed to defuse dangerous inflationary forces and dealt with the consequences of a stock market crash, a large asset price bubble, and a series of liquidity crises. These events did not distract us from the eventual achievement of price stability and the greater economic stability that goes with it.
As we confront thedangers that lie ahead, the marked improvement in the degree of flexibility and resilience exhibited by our economy should afford us considerable comfort. Assuming it will persist, the trend toward increased flexibility implies an ever-greater part of the resolution of economic imbalances will occur through the actions of business firms and households. Less will be required from the risk-laden initiatives of monetary policymakers.
Each generation of policymakers has had to grapple with a changing portfolio of problems. So we can be assured that we will confront different problems in the future. The innovative technologies that have helped us reap enormous efficiencies will doubtless present us with challenges that we cannot currently anticipate.
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