Columbia University, New York, 11 October 2022 « What monetary policy narrative after Forward Guidance? »  Speech by François Villeroy de Galhau, Governor of the Banque de France  Page 2 sur 14  Ladies and gentlemen, dear students and professors, I am very grateful to Dr. Patricia Mosser for the invitation to speak at Columbia University. I already had the honour of delivering a speech here in April 2017, and it is great to be back. The current context is obviously quite different from five years ago: today we face too high inflation – compared with too low inflation in 2017 –, and we are navigating through a geopolitical environment that looks unprecedented in its uncertainty. Due to this uncertainty, binding forward guidance from Central Banks appears less relevant, and has rightly been put aside in the recent past. But this is not an argument for returning to the secrecy that characterised central banking until the 1990s. One of the most topical questions for central banks is therefore how to ensure a “new predictability”. i Indeed, not having forward guidance does not mean, cannot mean, not having a narrative and a monetary strategy. Let me elaborate on this today, first laying out the reasons why we have to act in a determined way to deliver our 2% inflation target (I), then proposing some milestones on our normalisation path (II) and finally shedding light on one sensitive coordination issue (III). I.
This assessment should according to me follow a four-pronged approach, with four key indicators:  First, actual inflation data, focusing on underlying inflation, as this is the part for which monetary policy is relevant. In particular we should look at measures of HICP excluding energy and food, and at negotiated wage growth: by the way, we don’t see so far signs of a generalised wage-price spiral. A turning point – which we don’t see yet – will be when underlying inflation is peaking. 7  Page 8 sur 14  Alternative measures of underlying inflation are less noisy than the standard index excluding food and energy and thus can better signal the medium term inflationary pressures. Indeed, in the aftermath of the pandemic, the three alternative measures shown on this slide (persistent and common component of inflation, trimmediii and finecoreiv) have turned up earlier than the standard core index. And both in 2008 and in 2011-2012, they have also signalled earlier the easing of inflationary pressures.  Second, future inflation. We will obviously use our models and forecasts, but we should also give a strong attention to inflation expectations by financial markets and still more by economic agents: entrepreneurs and households are the real price- and wage-setters. Here so far, 3 to 5 year inflation expectations remain well anchored in markets, but with some mixed signals from businesses and households. Any sign of stronger de-anchoring would call for a stronger monetary reaction.