That outlook rests importantly on two judgments: First, that the economy will be producing well below its potential for some time, which will directly restrain production costs and profit margins; and second, that inflation expectations are more likely to fall than rise over time as the level of real activity remains persistently less than its potential and actual inflation remains low.
We can never directly observe the level of economic potential – it is largely inferred from the behavior of related variables, like output, productivity, costs and prices.