The center of the forecast distribution, of necessity, is still important to our deliberations but, more than many people realize, policymaking is to a substantial extent focused on the potential deviations from the central forecast and the costs should those outcomes prevail. In short, our policy behavior is the result of examining the implications of the interaction of probability distributions and loss functions.
We do not engage in the formal mathematics of such a model, of course, but we do follow its underlying philosophy. While we are constantly exploring ways to improve our policy procedures, we believe our current regime has served us well to date.