Consequently, a prudent monetary policy would be based on a working assumption that the underlying trend of inflation has been stabilized in the past couple of years and that we shall have to maintain a close watch for signs that inflationary pressures are mounting. Challenges for Monetary Policy Let me turn now to the implications of the economic outlook for challenges to monetary policy.
I’ll discuss five challenges, three faced and met earlier in the expansion, one currently in play, and a fifth that deserves attention. The first challenge was the more erratic and, on average, slower pace of recovery following the last recession. This was due, in large measure, to the weight of a series of structural imbalances inherited from the previous expansion.