Turning to financial institutions, vulnerabilities in the non-bank financial sector have also increased this year. The risk that forced selling by investment funds could amplify a market correction remains high, amid low liquidity buffers. Duration risk has started to materialise and remains elevated, and further bond portfolio revaluation losses may arise in the context of rising yields.
To understand how we got to where we are now, looking back at 20 years of inflation targeting, we can start further back: with a speech from 1979, titled ‘The anguish of central banking’, by Arthur Burns, who was Chair of the US Federal Reserve for most of the 1970s. This was a period of high inflation, in the US and globally.