Indeed, Athanasios Orphanides and Simon van Norden have argued that a major problem that gave rise to the great inflation of the 1970s was the mismeasurement of the perceived output gap.6 They explained how the Fed consistently relied on estimated output gaps that were subsequently revised and ended up being much smaller than initially thought.
The labor market remains strong, economic activity is increasing at a moderate pace, and the Federal Open Market Committee's (FOMC) baseline outlook is for a continuation of this performance in 2020.2 At present, personal consumption expenditures, or PCE, price inflation is running somewhat below the Committee's 2 percent objective, but we project that, under appropriate monetary policy, inflation will rise gradually to our symmetric 2 percent objective.