Risks to our outlook and adjusting to incoming data Given the unprecedented nature of the pandemic and the uniqueness of the recovery, evaluating the risks to our outlook has taken on more importance. Central banks must assess where the economy and inflation are heading, since monetary policy actions take time to flow through the economy and achieve their desired result.
Nonetheless, even in normal times, there is always a degree of uncertainty when measuring economic activity as well as gauging underlying inflationary pressures related to the output gap and other factors. Our models provide a valuable framework upon which to build our forecast, but they reflect historical economic trends and cycles and can’t capture all economic realities.