Indeed, both overall and core inflation were only 1.4 percent for the year through July, well short of the Federal Open Market Committee’s (FOMC) objective. To what extent does it make sense to look through the recent low inflation readings on the grounds they are transitory?
I would argue that these revisions to u* and r* indicate that the FOMC has been data dependent in this second sense and that these updated assessments of u* and r* have had an important influence on the path for the policy rate actually implemented in recent years.