By failing to fully adjust for this decline, the prescriptions of simple policy rules – which provide a useful benchmark under normal circumstances – could be significantly too restrictive now and could remain so for some time to come.
In this regard, I think it is informative that the Blue Chip consensus forecast released in March showed the real three-month Treasury bill rate settling down at only 1-1/4 percent late in the decade, down 120 basis points from the long-run projections made prior to the recession.