Edition November 11, 2026

Trust, expectations and monetary policy

Trust in central banks is more than a source of legitimacy: it is essential to how monetary policy works, and must be earned.

The value of banknotes and deposits rests on a social contract and on trust that others will accept them at roughly the same worth. Flexible inflation targeting brought central banks a long period of low, stable inflation alongside rising real incomes, but persistent above-target inflation has recently damaged that record, particularly since COVID. Inflation is therefore more likely to move off target, economic forecasts are more likely to prove wrong, and policy trade-offs become harder.

This summary is based on the available full source text. Summary prepared with AI assistance. The original source is authoritative.