Starting in the mid-1960s, the Federal Reserve didn’t act forcefully in the face of rising inflation, and the public grew less certain of the central bank’s commitment to fighting inflation. This uncertainty led expectations of future inflation to become “unanchored” and more likely to react to economic developments. In 1973, an oil price shock led to a large increase in overall inflation.
It must strive to resolve any conflicts that may arise between regulations that are locally optimal but systemically inconsistent. It must balance the need to guard against regulatory arbitrage with the value of preserving diverse risk-taking strategies and productive innovation. Finally, it must ensure consistent implementation across jurisdictions to build an open and competitive system.