**THE PATH TOWARDS SUSTAINED PRICE STABILITY REMAINS UNCERTAIN AND FRAUGHT WITH RISKS
**PROFIT MARGINS EXPECTED TO ABSORB RISING LABOUR COSTS
**A MONETARY POLICY STANCE THAT ERRS ON THE SIDE OF DETERMINATION INSURES AGAINST COSTLY POLICY MISTAKES
**RULES SUGGEST THAT THE OPTIMAL INTEREST RATE PATH WOULD HAVE BEEN STEEPER
**THE FACT THAT WE UNDERESTIMATED INFLATION PERSISTENCE LAST YEAR RAISES THE PROBABILITY THAT WE ARE ALSO UNDERESTIMATING INFLATION TODAY
**GIVING MORE WEIGHT TO OBSERVABLE DATA, IN PARTICULAR AT TIMES OF HIGH UNCERTAINTY, CAN IMPROVE THE QUALITY OF POLICY DECISIONS
**THIS MEANS THAT WE NEED TO REMAIN HIGHLY DATA-DEPENDENT AND ERR ON THE SIDE OF DOING TOO MUCH RATHER THAN TOO LITTLE
**RISKS OF BOTH A DE-ANCHORING OF INFLATION EXPECTATIONS AND WEAKER MONETARY POLICY TRANSMISSION SUGGEST THAT THERE IS A LIMIT TO HOW LONG INFLATION CAN STAY ABOVE 2%
**WE THUS NEED TO KEEP RAISING INTEREST RATES UNTIL WE SEE CONVINCING EVIDENCE THAT DEVELOPMENTS IN UNDERLYING INFLATION ARE CONSISTENT WITH A RETURN OF HEADLINE INFLATION TO OUR 2%
**A MONETARY POLICY STANCE THAT ERRS ON THE SIDE OF DETERMINATION “INSURES” AGAINST COSTLY POLICY MISTAKES
This article was written by Ryan Paisey at www.forexlive.com.