At an IMF and World Bank Spring Meetings panel on rethinking macro policy frameworks, Reserve Bank of Australia Assistant Governor (Economic) Sarah Hunter discussed how more frequent and persistent supply shocks are making monetary policy analysis and decision-making harder for inflation-targeting central banks. She argued that central banks will need to broaden their toolkits and materially improve how they communicate policy nuance to markets and the public. Hunter emphasised that repeated relative supply shocks can be harder to “look through”, forcing policymakers to confront more difficult trade-offs between inflation and economic activity than in demand-driven cycles. She framed inflation expectations and institutional credibility as the key anchor, pointing to the 2022–2024 experience of disinflation with comparatively small labour-market costs as evidence of the benefits of well-anchored expectations, while warning that losing that anchor would raise the cost of restoring price stability. In assessing supply shocks, she highlighted the importance of considering second-round effects and pass-through, persistence and size of the shock, and starting conditions such as an already tight economy, alongside the shock’s real-income impact on households. On longer-term framework evolution, Hunter noted the RBA is using scenarios more than in the past, both as an internal risk-management tool and as a way to help external audiences understand the central bank’s reaction function under different states of the world. She also described a push for greater internal curiosity and wider engagement with government, the private sector and academia to test assumptions and surface risks in a more shock-prone environment.

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