Our review was prompted by changes in key long-run features of the economy: The recognition that price inflation is much less sensitive to labor market tightness than historically—that is, a flat Phillips curve; that the equilibrium interest rate is much lower than in the past; and that trend underlying inflation has moved somewhat below 2 percent.
These developments reduce the amount we can cut interest rates to buffer the economy, weaken inflation expectations, and could lead to worse employment and inflation outcomes over time if not addressed.