It is difficult to include all such factors, but calculations show that we should expect a given interest-rate increase to subdue consumption for mortgage holders more now than in the mid-1990s. 8 At least for certain groups, monetary policy therefore has a greater impact on the real economy now than previously. This could justify slower rate hikes than has been the case in similar economic situations in previous years. For other groups of households, on the other hand, the impact of rate hikes is not as great. There is hence an intrinsic tension here. The Riksbank has only one policy rate and it is adapted to aggregate demand and the economic outlook in general, and above all to how inflation will develop. Higher interest-rate sensitivity and the extent to which it affects the impact of monetary policy will, in other words, be a source of uncertainty. It will, after all, be a challenge to have a situation for a number of years in which interest rates rise – albeit slowly – while debt is higher than ever before. The supply of labour is greater From household consumption and the demand side of the economy, I would like to go on to the labour market and the supply side and my third and final example of the transformation of the economic landscape.
And it is reasonable to evaluate the costs and benefits of using all these different tools so that economic policy is as efficient and effective as possible for the economy as a whole. But how the various tools are used is a matter for those responsible for the different policy areas and as regards fiscal policy, it is of course the Riksdag and the Government that determine how and on what grounds it is to be conducted. Price stability still the basis for monetary policy In conclusion – the decade we are emerging from was characterised by crises and a deep, long-lasting recession. In that perspective, it is difficult not to describe the future as brighter – to refer back to the question which is the title of today’s seminar. As always, there are uncertainty factors, but the Riksbank’s assessment is that the economic outlook is still good both in Sweden and abroad. For monetary policy, it is a question of ensuring that inflation continues to develop in line with our inflation target. Monetary policy therefore needs to remain expansionary so that the strong economy can have an impact on inflation and so that the Swedish krona does not appreciate too rapidly. In the near term, we also need to be pay particular attention to current downside risks. When normalisation of monetary policy is under way, it will happen in an environment that is, in many ways, different from the one we have operated in over the last ten years.