If cost pressures become higher than in the main scenario, the Riksbank may need to raise the repo rate more. This could occur if wages rise more quickly or if productivity increases more slowly than expected. If the financial unrest persists and international economic activity will be weaker than expected, the interest rate may instead need to be lower. The direction for monetary policy in practice will  BIS Review 132/2007  7  depend on how new information on economic developments abroad and in Sweden will affect the prospects for economic activity and inflation. (Slide 15) Conclusion The Swedish economy is doing well. And the essential purpose of our work is to ensure good economic growth that is sustainable in the long term. As things look today, we are assuming that the interest rate path in our forecast will contribute to inflation being in line with our target around two years ahead. We believe that this will at the same time contribute to a balanced development in production and employment. (Slide 16) And we also believe that the changes we have made in our communication will help enable us to fulfil the requirements made of us in a better way. We have made the changes in our communication to become even clearer and more open. We always have this ambition, and have had it since the inflation target was introduced. But it is not merely with regard to communication that we are constantly reviewing and trying to develop our methods of working.
In particular, downside risks to the achievement of our employment and inflation goals amid very low interest rates were compelling arguments for a relatively cautious and predictable approach to policy. This proved its worth: The U.S. economy continued to expand at a healthy pace even as the Fed raised rates numerous times. For those who follow the Fed closely, you’ve noticed that the FOMC has been slimming down its statements of late and using less forward guidance about the future path of policy. In this vein, the FOMC in its recent statement removed language indicating that monetary policy remains accommodative.3 Let me make clear, these more concise statements do not signify a shift in our monetary policy approach. Instead, they represent the natural evolution of the language describing the factors influencing our policy decisions in the context of the strength of the economic outlook and inflation being near our 2 percent longer-run goal. These changes in our communication of policy views are a sign that we are nearing the end of the process of normalizing monetary policy and are inching closer to conducting normal monetary policy. Arguably, it’s been a long time since monetary policy was normal, so it’s worth describing what “normal” looks like in some detail. At its most basic level, monetary policy-making will remain the same: The path of interest rates will continue to be guided strategically by our dual mandate objectives and shaped tactically by the data and their implications for the economic outlook.