The same goes for policymakers – especially when it comes to fiscal policy or monetary policy. As far as central banking is concerned, “navigating the challenges” is broad in scope. It includes drawing the right conclusions from financial market signals. The relationship between monetary policy and financial markets is not a one-way street.
Stock and bond prices reflect expectations on future growth and inflation, but also on monetary policy. These market expectations, in turn, provide valuable information for policymakers. But things have become even more multi-layered. On the one hand we face increasing market complexity and changes. On the other hand we see new players, products and trading patterns.