This stability is due, in substantial measure, to our predecessors' success in bringing inflation under control after the 1970s. We cannot be certain, however, about the durability of this legacy. If a central bank enjoys a high degree of credibility with its stakeholders, the anchoring of inflation expectations gives policymakers some scope for supporting real activity in the face of adverse shocks.
But, such a strategy poses risks. If the Fed were deemed too accommodative for too long, credibility could be undermined, threatening to create a persistent inflation problem that would have to be corrected, no doubt at great cost. The public could mistakenly see the stance of policy as a sign that our commitment to long-term price stability has wavered.