Thanks Simon, thanks Cantillon haha

An economy can experience higher nominal rates while real policy conditions remain accommodative. The concern is that small rate increases coexist with persistent inflation expectations, allowing a higher-rate, higher-inflation configuration to endure without an announced regime change. In short, this can be explained through insufficient real tightening. Nominal rate hikes fail to outrun inflation expectations or an increase in neutral rates, and behave as an inflation/stimulating backstop (neo-fisherian) rather than inflation reducing or restrictive policy.

Source Abstract: Central banks are viewed as having a demonstrated ability to lower long-run inflation. Since the Financial Crisis, however, the central banks in some jurisdictions seem almost powerless to accomplish the opposite. In this article, we offer an explanation for why this may be the case. Because central banks have limited instruments, long-run inflation is ultimately determined by fiscal policy. Central bank control of long-run inflation therefore ultimately hinges on its ability to gain fiscal compliance with its objectives. This ability is shown to be inherently easier for a central bank determined to lower inflation than for a central bank determined to accomplish the opposite. Among other things, the analysis here suggests that for the central banks of advanced economies, any stated inflation target is more credibly viewed as a ceiling. https://www.stlouisfed.org/-/media/project/frbstl/stlouisfed/publications/review/pdfs/2019/01/14/understanding-lowflation.pdf?sc_lang=en&hash=2C9CE380822DD156967EC2003F4263A6

When inflation starts with a supply problem, raising interest rates more forcefully can bring inflation down sooner, but can also cause a deeper economic slump. Clear, believable forecasts can help people expect a return to stability and improve that difficult trade-off. "The effects of central bank communication depend on the content of what is communicated. Quantitative information about the policy rule produces outcomes that are statistically indistinguishable from qualitative guidance alone, under both monetary policy regimes and across all out comes we measure. Communication of inflation and output projections, by contrast, substantially improves macroeconomic outcomes, and does so because it is easy to use and credible. Sessions with projections show lower volatility and persistence than sessions without, under either communication regime. By guiding participants’ expectations of inflation and output, projections anchor long-term inflation expectations and reduce inflation volatility. Under the accommodative Look-Through policy they bring inflation back to steady state quickly after a large and persistent supply shock, so that inflation dynamics come to resemble those under Lean-Against without the accompanying decline in output. Under Lean-Against projections moderate the recessionary effects. The communication of projections also facilitates strong anchoring of long-term inflation expectations. Finally, projections computed using the rational expectations solution effectively steer participants’ expectations toward rational benchmarks. When participants view the central bank’s projections as credible and incorporate them into their forecasts, their expectations become more closely aligned with rational expectations. As a result, the dynamics of the experimental economies are more stable than in scenarios without central bank communication of projections." Source: Beyond "Looking Through": Monetary Policy Responses and Communication Under Supply-Driven Inflation https://www.bankofcanada.ca/wp-content/uploads/2026/10/swp2026-39.pdf