For a large committee to agree on an entire path of future policy rates is, however, a completely different endeavour and unlikely to be possible in practice, in particular when global uncertainty severely clouds the medium-term outlook.20 Incidentally, most market criticism of the Federal Reserve’s dot plot focuses on the fact that the dots represent individual views rather than the committee’s joint assessment.21 Second, even a credible interest rate path may cause misperceptions.
Indeed, had the Fed not been data dependent in this second sense and remained closed to the possibility that the economy had changed and historical estimates of r* and u* needed to be revised, that stubbornness would have represented a material policy mistake. In addition to u* and r*, an important input into any monetary policy assessment is the state of inflation expectations.