Policymakers have tried to create incentives for risk mitigation and have sought to address potential pitfalls through a combination of regulatory oversight and market discipline. However, some have raised concerns about the potential effects of the new risk-management techniques on the stability of the financial system as a whole.
The facts that the economy is operating near its capacity, and that growth is forecast to continue to run above potential, together pose an upside risk to our inflation forecast. At the same time, our belief that there remains some slack in the labour market poses a downside risk to our inflation forecast.