Today, policymakers face a threat from global banks will increase the urgency of their tightening inflation brought on by a combination of a processes. Second, central banks have built up strong post-COVID recovery, lingering supply- credibility regarding their resolve and ability to chain disruptions, the war in Ukraine, and overly keep inflation at their target rates. This is mainly accommodative fiscal and monetary policy. In due to successful efforts to bring inflation down response, monetary policy has begun to swing in the 1980s and maintain it at around 2% over toward restrictive conditions, much as it did the past 30 years. The credibility gained by during the 1980s (Figure I-6), though on a more central banks is what has helped anchor inflation coordinated scale. There are similarities between expectations today. This is the key reason why the the global recessions of the 1970s and what may likelihood of central banks changing their inflation transpire in coming months, such as relatively targets amid a high-inflation environment tight labor markets (Figure I-7) and the presence remains low for now, as doing so could hurt their of supply-side shocks, but there are also key credibility and thus their ability to address differences. First, rather than double-digit inflation in future episodes. That said, a change inflation rising ever higher and on the back of in the inflation target at some future date cannot rising inflation expectations and wages, inflation be ruled out should it be supported by changes in expectations have largely stayed contained, policy preferences or the structure of the particularly those that look out over longer economy (Gagnon and Collins, 2019). periods (Figure I-8). Should that change, central FIGURE I-6 Global financial conditions continue to tighten x  e d n I s  Tighter conditions on ti di on C  al i nc a n  FI al lob Easier conditions G–        Note: The global index is a GDP-weighted average of the Vanguard U.S., Bloomberg U.K., Vanguard euro zone, and Goldman Sachs Japan financial conditions indexes. Sources: Vanguard calculations, based on data from Thomson Reuters Datastream, Bloomberg, and Goldman Sachs, as of October 31, 2022. 12