But we were all then hit by new shocks to the world economy. Russian default, followed by the near collapse of a highly-geared US hedge fund, led to a flight of investment into only the most secure and highly liquid assets, threatening not only a new round of financial crises in the emerging markets of Asia, Latin America and elsewhere, but also, for the first time, a credit crunch in major industrial economies, most notably in the US. Meanwhile the Japanese economy remained independently mired in recession. BIS Review 56/1999  2  By the time of the annual IMF meetings in Washington last October the public atmosphere was close to panic and the media noise was of impending world recession. Business confidence slumped pretty well everywhere, and so too in this country did consumer confidence. We were faced in the Monetary Policy Committee with a situation in which the overall economic slowdown which we had been seeking to engineer, in order to prevent accelerating inflation, threatened to become an unnecessary economic downturn likely to produce an unwanted fall in the rate of inflation to significantly below the Government’s 2½% inflation target.
But, one thing I would flag is that, on my read, recent fiscal announcements will, on balance, provide a stimulus to demand relative to supply in the short to medium term. We will come to our more complete assessment in November. But I recognise that, as of today, November might seem a long time away. For algorithmic traders, even nanoseconds can represent a long time. The media or political cycle operates over a matter of hours. And, as we saw yesterday, acting to sustain orderly markets may also require action at short order. But monetary policy needs to be framed on a more considered or lower frequency basis, reflecting both the famously ‘long and variable lags’ in the transmission of monetary policy to price developments, as well as the need to distinguish signal from noise in the flow of incoming data and analysis. So the following question arises: if we need to wait for November for our comprehensive assessment, what happens in the meantime? Page 6  During the intervening period, we need to rely on our communication about the economic and policy outlook through remarks like these, and its transmission to market developments, the real economy and wage and price setting behaviour, via market participants’ expectations. That process, in turn, relies on the underlying macro and market institutional framework. Essential to maintaining a credible and stable institutional framework within which the Bank’s monetary policy can operate effectively are: clearly defined responsibilities; clearly identified objectives; and respect for institutional independence.