In the Federal Reserve Bank of New York’s Survey of Primary Dealers, for example, participants have repeatedly revised downward the unemployment rate at which they anticipate that tightening will first occur.18 I mentioned that the FOMC’s new forward guidance offers considerable insight into the Committee’s likely reaction function, but I should note that the guidance it provides is not complete.
For example, the Committee has not specified exactly how it intends to vary the federal funds rate after liftoff from the effective lower bound, although it has stated that “when the Committee decides to begin to remove policy accommodation, it will take a balanced approach.”19 This language is consistent with optimal policy prescriptions that call for lower-  lead market participants to push out the expected timing of liftoff, automatically promoting lower longer-term rates and an easing of financial conditions.