The resolution of this trade-off is inherently challenging for all central banks. However, it is facilitated by two fundamental components of the ECB’s monetary policy strategy. The first is the quantification of a price stability objective. This grants predictability even in the absence of explicit communication about the future path of policy.
Agents can draw inference about the most likely direction of policy by comparing the most likely evolution of inflation – which is part of the information that the ECB conveys to the market – with the objective of the ECB.