Imagine a scenario where a central bank has failed to keep inflation low and stable for several years. As a result, businesses and workers now anticipate that high inflation will continue indefinitely. What is the primary reason this change in public expectation makes it more difficult for policymakers to bring inflation back down to a low target?

Central Bank Credibility and Policy Challenges

The Rationale for Stable Inflation Expectations

If a central bank successfully keeps the public's expectations about future inflation low and stable, it means that the short-run trade-off between inflation and unemployment has been completely eliminated.