When market participants pay attention only to the words we say about future policy and begin to discount the flow of actual economic data, they set up a oneway bet in markets.22 Market prices cease acting as a check for our own projections.
Bank research suggests that this can also lead to inefficient capital flows.23 It is normal that there will be times when market views about the future of the economy and interest rates, and those of the central bank, do not align. Indeed, normal market function depends on there being a variety of views about the economy.