Editor's note: This article was originally published on August 27, 2020 by Menzie Chinn here.
The Fed's new framework, as described by Chairman Powell, mentions "shortfalls" (particularly in employment) instead of deviations of the natural rate. The output analog of this shift is moving from the deviation of output from potential (i.e., output gap) to an output slack measure. If we interpret this as requiring a focus on a Friedman-esque plucking model of maximal output, rather than potential GDP as described in most textbooks, what does this mean for where we