In these scenarios, the right-tail will not serve as an accurate leading indicator of generalised long-term inflation expectations. [3] Accordingly, the interpretation of right-tail measures is closely bound to the general analysis of the relative contribution of temporary and persistent forces in inflation dynamics. Finally, the meeting-by-meeting approach to monetary policy certainly poses communication challenges for central banks.
Directional and qualitative communication about the gap between the current policy rate and the terminal rate can foster market dynamics that reinforce and underpin the desired monetary policy stance. However, it is debatable whether more quantitative signalling of the meeting-by-meeting assessment of the prevailing terminal rate is necessary or helpful.