evolving as new economic data are published and analysed. the recent discussion of uk monetary policy – and the absence of unanimity in mpc votes – should be understood in that light. in today ’ s talk, i aim to flesh out the framework established in the mpc ’ s recent forecasts and reports for assessing how to identify and follow this narrow path. [ 6 ] these forecasts and reports represent the ‘ best collective judgement ’ of the mpc as a whole. but i will also take this opportunity to flag where i differ from that ‘ best collective judgement ’. in particular, i ’ d like to emphasise from the outset my preference for a ‘ steady - handed ’ approach to monetary policy – one which focuses on the slower moving and more persistent trends in the data rather than responding to each individual data release. as i have discussed in a number of previous talks, [ 7 ] i am sceptical that we know enough : about the state of the economy ; ( 2 ) about key features of the economy ’ s structure and behaviour ; ( 3 ) about the intrinsic properties of inflation dynamics ; or ( 4 ) about the monetary policy transmission mechanism, to be able to use monetary policy to ‘ fine tune ’ economic and price developments. and i worry that attempts to implement any such fine tuning will introduce more volatility into inflation and the broader economic system, rather than support the stabilisation at target that we seek. of course, there are occasions – especially in the face of financial disturbances and market dysfunction – when central banks may need to step in to offer support quickly and sizeably to support financial stability and monetary policy transmission. we have seen examples of this of late, not least during the ‘ dash - for - cash ’ episode at the outset of the covid pandemic in march 2020. and large macroeconomic shocks may require large monetary policy responses. again, recent experience offers some examples. but, in my view, as a general rule monetary policy responses to macroeconomic developments need to be measured and persistent if they are to be effective. such an approach ensures that changes in bank rate are transmitted along the yield curve to the longer - term rates more relevant to spending and pricing decisions, while also allowing learning about the impact of policy decisions ahead of making irretrievable mistakes in one direction or the other. viewed through this lens, the decision to raise bank rate by 25bp earlier in the month should be seen as part of a broader transition

and had instead become a source of international financial instability? these are difficult judgements. they involve second guessing outcomes generated by financial and economic markets. policymakers will inevitably sometimes get the assessment wrong, with costly repercussions. but these judgements cannot be ducked. monetary policymakers have to form views about a range of uncertain and ill - defined issues, such as the level of potential supply and the credibility of policy. the sustainability of asset prices and economic imbalances are no different. ultimately, a policy has to be set even if explicit judgements are not formed. but policymakers also need better tools to back up these judgements with actions. shortterm interest rates are a blunt instrument best deployed maintaining a broad balance between nominal demand and supply. they are not well suited to the task of managing asset price bubbles and economic imbalances. they may be wholly ineffective in addressing some types of imbalances, particularly those with an international dimension. and, even for domestic imbalances, short - term interest rates would probably need to be held substantially higher for a persistent period in order to suppress rapid rises in asset prices or growing imbalances. such policy actions could generate significant economic costs. the practical difficulty of implementing a policy of “ leaning against the wind ”, where the main policy instrument is short - term interest rates, should not be underestimated. if, as policymakers, we were successful in preventing a bubble from inflating, it might appear as if we were responding to phantom concerns. the bubble or imbalance would be nowhere to be seen, but interest rates would be higher, inflation would undershoot the inflation target and we would appear to have inflicted unnecessary economic hardship. that could undermine public faith and support in both the inflation target and the mpc. for me, the single most important lesson from the financial crisis is the need to expand the range of instruments available to policymakers. the inflation targeting framework provides the scope to respond to asset price bubbles and to imbalances that threaten future economic stability. but short - term interest rates are not well suited to managing such risks. the precise design of such new instruments is now the focus of much work and analysis. it is likely that a range of instruments and initiatives will be required. these may extend beyond new regulatory instruments and should embrace the need for greater international policy coordination. the ideal would be policy instruments and processes which are effective in preventing the build up of asset price bubbles and economic imbalance