pointing in opposite directions, and in particular that central banks have the necessary operational tools and can use them at all times if required. recent experiences indicate the larger role of the financial stability objective in modern central banking in contrast to the orthodoxy of the post - 1970s era when monetary policy alone came to the fore. this rebalancing in some ways takes us back to the earlier classical gold standard era of central banking. but in modern central banking, the separation principle is much more important than it was in the classical era. by this i mean distinguishing between, and communicating the distinction between, monetary policy and financial stability actions. public looking at recent experience in the uk, the so - called ldi event was clearly a financial stability not monetary policy one, and the challenge was to structure the intervention and communicate it in a way that reinforced this point. the march 2020 “ dash for cash ” was more complicated because it arose in the context of both financial stability and monetary policy events ( the latter in the sense of the severe and unexpected recession ). how to structure and communicate the policy response by central banks in this – hopefully highly unusual - situation deserves more attention. that said, in the normal state of affairs we are moving to a world where our standard operations meet the system ’ s demand for liquidity in normal times, and not more than that. against this backdrop, monetary policy can most effectively set the official interest rate. in normal conditions, meeting the demand for liquidity – most obviously through the level of reserves banks choose to hold – should also support financial stability. beyond that, we must then have a set of effective and usable exceptional tools for financial stability stresses including when they arise in the non - bank part of the financial sector. the classical gold standard was an era of prolonged monetary stability punctuated by the need to respond rapidly and forcefully to financial stability shocks, and in doing so preserve monetary stability. walter bagehot ’ s critique of the bank of england in the classical gold standard era was for not responding in a timely and forceful way to financial stability shocks. in the covid - ukraine era central banks did respond rapidly and forcefully. some would still say we did too much. i disagree with that assessment. but i do think that going forwards – and as we experienced positively with the ldi crisis – rediscovering the distinctive roles of monetary and financial stability actions will help us. financial stability issues themselves create macroeconomic trade - offs which can affect monetary policy. but these will

soft landing than a recession induced process. for the uk, this is consistent with how we have revised our outlook for growth, and the numbers themselves so far this year. inflation expectations appear to be better anchored, which i put down in good part to the presence of independent central banks with clear mandates and nominal anchors, usually in the form of inflation targets. but, crucially, policy does have to respond to ensure credibility is maintained. moreover, while second round effects may be smaller that does not tell us how much smaller and less persistent they will eventually end up being than in the past. on this basis, at the moment i put more weight on the first case – self - correction - but some smaller weight on each of the other two. these weights can of course change over time. this is an important issue of the moment for monetary policy. it is directly relevant to the question of how challenging the last mile of returning to our inflation target level on a sustained basis actually will be. the well - known argument goes that an independent central bank operating a transparent low inflation target successfully over time will anchor inflation expectations more consistently. in this world, in the short - run monetary policy can respond to shocks with suitable flexibility, acting consistently but not always identically, to return inflation to target. in the uk case, the evidence suggests this may have worked insofar as we are seeing a lower level of inflation persistence than we expected a year ago. but, we need to be cautious because the job is not completed – we are not yet back to target on a sustained basis. policy setting will need to remain restrictive for sufficiently long until the risks to inflation remaining sustainably around the 2 % target in the medium term have dissipated further. the course will therefore be a steady one. before considering challenges going forward, i want to pull out one further point from recent experience. in an effective monetary policy regime we should have flexibility in the short term on public how quickly we return inflation to target. looking back over recent years, i think it is common ground that the covid and ukraine shocks could not have been anticipated, and certainly not in sufficient time for any consequent monetary policy actions to have had an effect on monetary conditions. but there are two follow - up questions that i get asked. one starts with the words “ with the benefit of hindsight ” what would you have done. the second, asks about actual policy choices once the shocks took effect. this is where so - called trade -