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Comment by jbay808

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility.

The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and then before you know it, the central bank wants to get inflation back under control again. But now nobody believes that they'll do what they say they're going to do, so they end up having to work twice as hard.

If your goal is stability, it's better to just keep your promises to begin with.

parent jbay808 4 years ago

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