we will reverse these actions when conditions require that. a fallacy of so - called modern monetary theory is that it believes monetary policy can be used without the credibility of independence and thus without the assurance that price stability will be maintained. of course, the real test of this may come when we reach the point at which policy needs to be tightened. actions will speak louder than words. but the great value of central bank independence – and the reason why it is rightly regarded so highly – is because it is a regime that provides the most powerful set of incentives possible, to do the right thing when that time does come. we are 2 / 3 bis central bankers'speeches individually accountable and collectively responsible to parliament for acting, without fear and favour, to hit the inflation target. not to do so, as well as being in breach of our statutory duties, would also be found out almost immediately by financial markets. inflation expectations would become de - anchored. and the policy, even if pursued, would risk being self - defeating. so there is both an institutional and a market discipline at work to mitigate this risk, which means that – while this risk does exist and it is encouraging that it is being scrutinised – in practice it is very unlikely to come to pass. and to be clear, there is no signal on policy in what i have just said. there is one further part to the recent context which is relevant to the institutional set - up of central banks with respect to monetary policy. i mentioned earlier that in the last ten to fifteen years, the shocks to which central banks have had to respond – to which we apply stabilisation tools – have got larger. i well remember that in the very early days of the mpc we had some monthly outturns for inflation which were exactly at 2. 5 % ( 2. 5 % was the original target on a different measure of inflation ). now, in most circles this would be a cause of celebration – we ’ ve hit the target, and again. as i remember, there were some smiles, but – being central bankers you might say – there was a concern that it could unduly raise expectations on the accuracy of the policy process in terms of outcomes. for the record, it didn ’ t last, as we knew it wouldn ’ t. in the last decade or so, the shocks have been larger and the variance of inflation in a number of countries has at times increased, but with a tendency to under

policy. in other words, central banks should develop and maintain a broad range of tools and seek to communicate this in a manner which avoids being interpreted as a signal on immediate or future preferences on policy setting. a second observation is that over this nearly twenty five year period, the challenge for monetary policy in many countries has shifted from one of getting inflation down to target, to one of getting it up to target. this has been less marked for the uk, in part because in a more open economy movements in the exchange rate have tended to raise inflation during this period. however we are facing a period of below target inflation today. and this is very different to the challenge of the early days of the mpc. it is important to emphasise that the uk regime of inflation targeting is a symmetrical one, and with very good reason. both high and low inflation are costly. put like this, the story is pretty obvious and uncontroversial. an independent central bank with a symmetric inflation target has the same objective either way, whether inflation is above or below target – it cannot throw the towel in. to do so would amount to abandoning our remit and our independence. 1 / 3 bis central bankers'speeches but that is not the end of the story because of late it has been said that central bank independence has been compromised by the actions taken in the face of the pandemic. what this really comes down to is the relationship between monetary and fiscal policy, between the economic policy of the government and the actions of the central bank. both monetary and fiscal policy are inherently counter - cyclical, and arguably never more so than when we face a shock of the scale of a global pandemic. but at the core of the argument for central bank independence is the evidence from the past that without an independent institution operating monetary policy the overall effects of economic policy were dangerously pro - cyclical at times, leading to bad outcomes. in the face of what may be the deepest recession since 1709, with a collapse of economic activity alongside very low inflation, the question we ask ourselves is what should an inflation targeting central bank do in this situation? the lessons of history don ’ t change. the answer is to respect our remit and our target, no good will come of ignoring that. the logic of counter - cyclical policy is that all the tools should be applied to raise activity and support employment and the welfare of the public, all of which is consistent with an inflation targeting monetary policy. in