. what happens in this scenario if the central bank has an inflation target? when inflationary pressure in the economy increases, the central bank will tighten monetary policy so as to prevent the inflation target from being exceeded. such a course of events would result in an unfavourable policy mix. the stimulation provided by fiscal policy would be counteracted by the monetary policy, which would mean that even the positive short - term effects of the stimulation would decrease or even become negative. moreover, if the stimulation provided by fiscal policy is very powerful, this could lead to expectations of an increased risk that the inflation target cannot be upheld, which would then lead to rising inflation expectations and higher risk premiums on swedish interest - bearing papers. households and companies may feel growing uncertainty both about developments in public revenues and expenditure, and about the formulation of monetary policy. this can be costly for the economy if it leads to a failure to carry out investments and to unnecessarily cautious decisions about the allocation of resources. to sum up, then, it becomes more costly to pursue an excessively expansive fiscal policy when monetary policy is guided by an explicit inflation target. a good policy mix makes for better conditions a better policy mix arises if the orientation of fiscal policy does not make for higher inflation risk premiums. it can avoid this if the orientation of fiscal policy appears to be sustainable in the long run. the surplus - target in the public finances is a good example of this. one means by which the confidence felt by the general public in economic policy can be monitored consists of inflation expectations, which should not diverge substantially from the riksbank ’ s inflation target. when expectations of inflation diverge from this target in the longer term - whether upwards or downwards - it implies that monetary policy should be adjusted so as to steer expectations back towards the target. in this connection it is important to observe that a central bank whose inflation target commands high credibility often has more scope for acting than one that has little credibility. assume, for example, that an economy where the credibility of the inflation target is high experiences a positive disturbance to the business cycle, leading to higher demand. since the inflation risk premiums are low, employees will not need to demand extra high nominal wages to insure themselves against unexpectedly high inflation. this is because it can be anticipated that the central bank will tighten monetary policy. this in turn will mean that less stringent measures will probably be required than would be needed by a central bank that had not yet

modification details, see federal financial institutions examination council ( 2020 ), “ federal financial institutions examination council issues statement on additional loan accommodations related to covid - 19, ” press release, august 3, https : / / www. ffiec. gov / press / pr080320. htm. see board of governors of the federal reserve system ( 2020 ), “ federal reserve board releases results of stress tests for 2020 and additional sensitivity analyses conducted in light of the coronavirus event, ” press release, june 25, https : / / www. federalreserve. gov / newsevents / pressreleases / bcreg20200625c. htm. - 5ensure resilience of the largest banks, we required them to resubmit their capital plans, imposed limitations on capital distributions, and recently provided new scenarios that will be used for a second round of stress tests later this year. 5 among other actions to support financial intermediaries during the pandemic, in april, the board issued an interim final rule that would exclude, on a temporary basis, u. s. treasury securities and deposits at federal reserve banks from large bank holding companies ’ supplementary leverage ratio. 6 the rule has helped ease strains in the u. s. treasury market and continues to facilitate the significant inflow of customer deposits at banks that has occurred since the onset of the event. looking ahead, in september, the board published an advance notice of proposed rulemaking ( anpr ) that would modernize the community reinvestment act ( cra ) by strengthening, clarifying, and tailoring cra regulations to ensure that they reflect the current banking landscape and better meet the core purpose of the cra, addressing inequities in credit access and ensuring an inclusive financial services industry. 7 the anpr proposes special provisions for minority depository institutions ( mdis ), womenowned financial institutions, low - income credit unions, and community development financial institutions. because of feedback received about lack of awareness of existing for second - round stress - test information, see board of governors of the federal reserve system ( 2020 ), “ federal reserve board releases hypothetical scenarios for second round of bank stress tests, ” press release, september 17, https : / / www. federalreserve. gov / newsevents / pressreleases / bcreg20200917a. htm. for more details regarding the effect on the supplementary leverage ratio,