Understanding Financial Stability Amid Polarizing Policies

Economic institutions must navigate shifting policies and public behavior, especially as geopolitical tensions grow. In the Netherlands, many citizens feel the effects of rising prices, so-called "inflation pain", despite data showing relatively moderate inflation. Misaligned public perception can fuel increased spending, potentially driving real inflation. Economists must bridge this gap by managing expectations and using tools like interest rates to guide economic behavior. However, when interest rates are already close to zero and can’t be lowered further, options become limited, raising questions about how to sustain long-term welfare. External shocks, such as potential U.S. tariff hikes under leaders like Donald Trump, also challenge economic stability. Such policies can raise trade costs and impact Dutch living standards. Institutions must respond with strategies that consider short-, medium-, and long-term effects to build economic resilience in an uncertain global landscape.