Moreover, the oil price shocks, analysis of which was not part of the standard tool kit of economists forty years ago, complicated matters considerably. For a variety of reasons, then, forecasters consistently underpredicted the future level of inflation, seeing considerably more disinflation from a particular policy stance than in fact occurred.
This underprediction was true for the Board staff’s outlook prepared for each meeting of the FOMC, in which inflation forecast errors persisted for some time, and it was also true for the bond market, as realized real interest rates, even at longer maturities, were very low or negative.