A stainless steel Rolex watch can sell for significantly more than what was paid in the retail store. The watch itself did not run any faster or more accurately than other watches; customers purchased it as an asset, expecting it to hold or increase its value in the future. Rolex contributed to their belief by producing fewer watches than people wished to purchase and maintain extended waiting lists. Essentially, Rolex was selling the promise that the watches would remain scarce.
Central banks make a similar promise about an entire economy: that prices will stay stable and that interest rates will move the way they say they will. This year's Nobel Prize in Economics was awarded to Robert Hall of Stanford University and Michael Woodford of Columbia University for explaining how central bank promises work. (Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2026, n.d.)
Governments and central banks attempt to mitigate fluctuations in inflation, employment, and economic growth by adjusting interest rates and government expenditures. They must understand how typical individuals will respond to these changes. Hall found that individuals make spending decisions based on how much income they anticipate generating throughout their lifetime rather than their current paycheck; a one-time stimulus check has minimal impact on spending; however, a raise someone expects to keep will significantly influence it. Policies that ignore this will likely fail.
Additionally, Hall demonstrated why unemployment may persist for an extended period following a recession: employers determine hiring decisions based on their view of the future as well.
Woodford expanded upon Hall's concept. A central bank’s pronouncements about the future may matter as much as its actions today. When the Federal Reserve confidently declares that it intends to maintain low interest rates for several years, families may acquire homes immediately and businesses start expansion efforts prior to any actual change occurring. Woodford incorporated this concept into the models currently utilized by central banks.
It would be simple to compare the Fed to a Rolex with a greater budget; however, the comparison falls apart. When Rolex resale prices fell from their peak around 2022, the company could only produce fewer watches or promote their scarcity; it had no way to give consumers money directly. (Hoffman, 2022)
Rolex's promise depended on consumer perceptions. A central bank's promise is backed by various mechanisms. The Fed may reduce interest rates or acquire bonds, thereby injecting additional money into the economy until its promises become true. Woodford's message is that a reliable central bank rarely needs to resort to such extreme measures. Consumers rely on the central bank's promises because they realize it possesses the authority to fulfill those promises. Regardless of whether we refer to watches or economies as a whole, expectations influence pricing, spending, and employment. A promise will only remain credible as long as there is someone capable of supporting it.

Citations
Hoffman, A. (2022, October). Rolex Prices to Drop Further as Supply Surges: Morgan Stanley. Bloomberg. https://www.bloomberg.com/news/articles/2022-10-14/rolex-prices-to-drop-further-as-supply-surges-morgan-stanley
Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2026. (n.d.). NobelPrize.org. https://www.nobelprize.org/prizes/economic-sciences/2026/popular-information/