However, if financial stress increases before the economy returns to a proper level of economic growth, it will become difficult to provide an outlook for economic activity and prices, and policymakers will face a hard decision: whether to continue monetary tightening, to halt it, or to shift to monetary easing.
For example, if the shift to monetary easing is premature, there is concern that an insufficient curbing of an overheated economy may lead to the entrenchment of high inflation. On the other hand, if the shift to monetary easing is put off and financial stress intensifies significantly, the adverse impact on the economy could increase.