Second, with respect to inflation, policy can still be preemptive if it responds to incoming data on utilization rates, given the link between current utilization rates and future inflation. Of course, the degree of confidence that policymakers have in this link (and specifically in their measure of excess demand) will determine how preemptive they are prepared to be.
The greater uncertainty about the level of excess demand should, I believe, diminish the aggressiveness with which monetary policy responds to changes in utilization rates. The difficulty in forecasting should, in addition, encourage more emphasis on responding to incoming data and diminish (though not eliminate) the role of the forecast in the policy decision. This is sensible and prudent.