If monetary policy is to be truly data dependent, then our stance of policy must begin to change. I’m not suggesting a rate increase now, but changing the forward guidance would at least afford us the flexibility to gradually raise rates beginning earlier than currently anticipated.
Just as puzzling, more recent global developments point in the opposite direction. Namely, despite the ongoing recovery, headline inflation rates in advanced economies remain well below target. The seemingly weakened relationship between inflation and economic slack seems to have made interpreting and controlling inflation dynamics more difficult. I will try to convince you that if one looks deeper this is not necessarily the case.