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 -

meeting the target later on by avoiding a disruptive bust. the crisis and subsequent great recession seem to make this logic even more compelling. but unfortunately, by the time an unsustainable credit boom has been diagnosed, a small increase in policy rates is unlikely to do much to cool it. and a large increase is likely to generate unacceptable collateral damage to the real economy. in a paper for the federal reserve ’ s annual conference at jackson hole a couple of years ago ( bean et al., 2011 ), i reported the results of some simulations of what might have happened if bank rate had been 200 basis points higher during the four years before the crisis began. the answer is that while the rise in real house prices over that period would have been less than half as large, the impact on overall real credit growth would have been pretty modest, reducing it by only a tenth – hardly enough to have a major bearing on the magnitude of the subsequent bust. moreover, output would have been some 3 per cent lower. monetary policy on its own therefore does not seem especially well suited to preventing credit / asset - price booms. so the crisis exposed not only the inadequacy of our understanding of the true nature of the risks that had built up in the financial sector, but also the need for suitable instruments to deal with them. one of the key reforms in the united kingdom following the crisis has been to establish a body – the financial policy committee ( fpc ) – with the responsibility for overseeing the stability of the financial system, together with specific powers to achieve that. the fpc will exist on a statutory basis once the financial services act has passed into law, but has been operating on an interim basis since june 2011. the fpc has two objectives. first and foremost, it is charged with identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the uk financial system. but that is accompanied by a secondary goal : subject to protecting resilience, it should support the economic policy of the government, including its objectives for growth and employment. this formulation mirrors that for the monetary policy committee and should ensure that the fpc approaches its primary objective of ensuring resilience of the financial system in a way that does not unduly impede economic growth. seven of the members of the committee, including myself, are drawn from within the financial authorities : the bank of england and the financial services authority ( fsa ).