If there is a decline in business confidence and the Fed desires to return unemployment towards its natural rate, what should it do? If business confidence eventually returns to normal but the Fed does not reverse its policy, what eventually happens to the inflation rate?

Business Confidence

An economic indicator that measures the degree of optimism or pessimism that business managers feel about the prospects of their companies and the economy as a whole.

Natural Rate

The unchanging rate of unemployment in the economy that occurs due to the frictional and structural factors when the labor market is in equilibrium.

Inflation Rate

The percentage increase in the general level of prices for goods and services in an economy over a period, typically measured annually.