But unlike the precise instruments and readings available to the captain, our models, data, and indicators provide only approximate information. Models, data, and indicators are invaluable in informing monetary policy, but a good deal of uncertainty is inherent in them. By definition, models are simplifications of reality, and never entirely reflect the complexity of a dynamic economy.
The threat of a deflationary spiral was subsequently avoided. A key lesson of monetary policy of the last 10 years is that timely action is essential to avoid the zero lower bound and an extended period of too low inflation. We don’t want to be in the midst of a deflationary spiral until we take action.