This qualification naturally leads us to ask: Suppose that, over the next year, the incoming evidence suggests that the trend rate of productivity growth is either substantially higher or substantially lower than we currently expect. How would that development affect the economy and monetary policy? In the final portion of my remarks, I will address this important question.
Implications for the economy and monetary policy For concreteness, suppose that the pace of productivity gains in the latter part of 2005 and in 2006 proves disappointing, sufficiently so to suggest that current estimates of the sustainable rate of productivity growth may be overoptimistic. Let us first consider what this information would likely imply for the medium-term economic forecast.