I don’t know by what mechanism expectations are set. Conditioned on this mysterious process connecting Fed policy and the public’s expectations, people should know the Fed plans to keep interest rates low for a long time. This probably means they will be low even after recovery starts and that definitely means there will be inflation.
Got that you public? There will be inflation, damn you! Hey you over there socking cash under the mattress: cash will be worth less in the future and your better off investing it. Seriously. The Fed is dead set about making that cash worth less!
Now, credibility sets in, bringing about recovery. I’m holding my breath.
(PS – Prof. Sumner, Fed GDP forecasts are nominal targets. Forecasting is the only credible way to create targets.)
UPDATE 5am – Ooops… See how easy it is to condense all types of monetary policy into “interest rates”!