Why did the Federal Reserve lean against their optimistic 2014 forecast? It seems that monetary policy over the past year can be summarized as a missed opportunity to supercharge the recovery, thereby locking the US economy into a suboptimal growth path.
He shows this actual and potential RGDP chart:
It seems reasonable to believe that if the economy regains potential output by the end of at best 2016, it will be attributable only to further downward revisions to potential output. And I even wonder whether the Fed would act to achieve their current growth forecasts or ultimately be content to continue along the current trend. The economy appears to be already molding itself around the lower output path.
Deep down he doesn´t want to believe that such a tragedy was possible in this day and age. But this being the day and age of inflation targeting, there´s no “seems” or “appears” about it. The Fed is getting exactly what it wants!
And the NGDP chart confirms that policymakers are pleased with their actual trend level path! While Duy´s chart shows the consequence the chart below shows the reason.