Finding Normal: Natural Rates and Policy Prescriptions

Over the past several years, the Federal Open Market Committee’s longer-run forecasts of the short-term interest rate and unemployment rate have steadily declined. These forecasts reflect the Committee’s views about the levels of the policy interest rate and unemployment rate that will eventually prevail when the economy returns to normal. A simple monetary policy rule illustrates how the reductions in these forecasts can imply a lower projected path for the policy rate