But, on the other hand, in setting the monetary policy response we need to keep basing our decisions on the latest evidence and factor in downside risks to the economic outlook. Policy normalisation, transmission lags and global spillovers In recent months, the public debate has stressed the risks of doing too little to curb inflation, since this would require a more painful future adjustment.
But this should not make us underappreciate the risk of doing too much. First, we should bear in mind that it takes time before the full impact of our measures is felt in the economy. [16] Moreover, monetary policy is transmitted to different variables with different lags. It immediately affects market expectations and financial market conditions through bond yields, equity prices and exchange rates.