But how can we make sure that a degree of monetary policy leeway does not distract us from the goal of price stability? In two ways: by embracing the primary goal of price stability and central bank independence; and by fostering public confidence and thus underpinning the credibility of the central bank’s stability strategy. Central banks can build up credibility in two ways.
First, by successfully safeguarding price stability for years. A track record like that also protects their independence. As Harold James once put it, confidence is the hard-won “core working capital of central banks” which it would be very costly to jeopardise.