At present we face asymmetric risks, as the downside risks are far more dire than the upside ones. This simplifies our risk management problem for the time being. Under normal circumstances, we would also be concerned with adding to financial vulnerabilities. After all, lower interest rates are intended to promote increased borrowing and therefore spending.
We have not forgotten about financial vulnerabilities—we will put more weight on them in our risk management framework once we are confident that our primary objective will be met. To conclude, here are some of the lessons for central banking I take from this teachable moment: 1. Use scenarios, but focus on the narrative they represent.