The first risk relates to the subsiding deflationary headwinds I have already mentioned. Could it be that our monetary policy is suddenly too expansive? In short, because of the uncertainties and imprecisions involved in measuring slack and inflationary pressure, we might find ourselves behind the curve without realising it.
As a result of the long and variable lags of monetary policy, we could end up with inflation above the rate consistent with our mandate. This would require a sharp correction of our monetary policy stance in years to come. Yet such a correction of interest rates would pose risks to the financial sector.