6 The greater the public confidence that policymakers will use these tools in response to episodes when the ability to cut the policy rate is constrained, the more real longer-term interest rates will systematically decline in response to negative economic developments, providing an automatic stabilizer to the economy.
Moreover, public confidence in the FOMC’s ability to react to economic downturns—even when the policy rate is very low— will support the resilience of longer-term inflation expectations at levels consistent with the FOMC’s objective. Keeping inflation expectations anchored will in turn further support the FOMC’s ability to lower real interest rates if the economy were to weaken substantially.