But the world is complex and people don’t have endless time to devote to understanding monetary policy. In practice, therefore, guidance can be useful in providing people with information about how the MPC sets policy and, over time, in improving understanding of how monetary policy will adjust to news. Guidance thus helps people to think along with the Committee so that their expectations about the path of policy adapt with ours as economic circumstances change. This can make monetary policy more effective by reducing unwarranted volatility in interest rate expectations and the extent to which the MPC has to move Bank Rate to meet the inflation target. The more those expectations are aligned with the policy path necessary to achieve the inflation target, the higher the probability that policy objective will be achieved. Guidance is not a promise of the future path of policy. And its use will not mean that all observers will agree on the likely path of policy for the simple reason that not everyone will agree on the likely path for the economy. However, with guidance, someone who has a different outlook can better anticipate how the MPC will adjust once the scales fall from the Committee’s eyes. Again it is the combination of the economy and the primacy of the inflation target, not the MPC, that ultimately determines that path of policy. 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  The MPC’s guidance speaks first and foremost to UK households and businesses.
1 Article 3.3 of the Treaty on the European Union. 2 Article 127.5 of the Treaty on the Functioning of the European Union. 3 The monetary policy strategy review: some preliminary considerations, Speech by Christine Lagarde, President  of the ECB, at the “ECB and Its Watchers XXI”conference, 30 September 2020 4 www.banque-france.fr/sites/default/files/medias/documents/2020.05.25_sep_en_cl.pdf 5  See Blanchard & Summers (2020), Automatic Stabilizers in a Low-Rate Environment, AEA Papers and Proceedings, vol 110, May. 5/5  BIS central bankers' speeches