The Bank of England's Megan Greene on Monetary Policy in a World of Supply Side Shocks | Odd Lots

Monetary policy now faces a fundamental shift as economies contend with successive, persistent negative supply shocks rather than isolated demand-side fluctuations. Geopolitical tensions, trade barriers, and energy volatility have rendered traditional forecasting models less effective, necessitating a transition toward scenario analysis and robust risk management. In the United Kingdom, the Bank of England’s Monetary Policy Committee must navigate these challenges while balancing weak economic growth against the risk of persistent inflation. External member Megan Greene highlights that the current environment requires policymakers to move beyond precise interest rate projections and instead focus on how different states of the world might impact inflation expectations and wage-setting behavior. Because monetary policy operates with significant lags, proactive judgment regarding second-round effects is essential, even as central banks lack direct tools to address the underlying supply-side constraints driving these global economic disruptions.