The net result was that in the March SEP, I left my projection of the terminal policy rate unchanged from December. But by June, there was little evidence that credit conditions were tightening more than would be expected as a result of monetary policy that had already tightened significantly.
As these expectations grow, firms may find it easier than before to reflect changes in the output gap and production cost in their sales prices, thereby contributing to a steepening of the Phillips curve. At the same time, an upward convergence of inflation expectations toward the 2 percent level is likely to shift the curve upward.