This avoids the prospect of larger increases down the road. Higher interest rates are starting to work to slow the economy and tame inflation. We have a long way to go to get inflation back to target, but there are some early signs that monetary policy is working. Unfortunately, this adjustment is not without some pain. We recognize that.
Pisani-Ferry and Posen cite three episodes in the past which central bankers should look at carefully, namely the Great Depression, Japan’s lost decade and, more generally, previous experiences of post-financial crisis periods. We all certainly take a great deal of interest in, and inspiration from, these episodes. Looking at other postcrisis experiences, like that in Japan, some lessons can be learned.