“Although inflation is currently low, some commentators fear that continued highly accommodative monetary policy may lead to a surge in inflation. However, projections that account for the different policy tools used by the Federal Reserve suggest that inflation will remain low in the near future. Moreover, the relative odds of low inflation outweigh those of high inflation, which is the opposite of historical projections. An important factor continuing to hold down inflation is the persistent effects of the financial crisis. The Federal Reserve responded to the recent financial crisis and the Great Recession by aggressively cutting the target for its benchmark short-term interest rate, known as the federal funds rate, to near zero. The Fed also began providing information about the probable future path of the short-term interest rate. Known as forward guidance, this policy is fintended to lead to lower long-term yields and therefore stimulate economic activity. Additionally, the Fed has purchased long-term Treasury securities and mortgage-backed securities, leading to a balance sheet that is substantially larger than before the financial crisis. Taylor (2014), among others, argues that these policies are likely to lead to substantially higher inflation. Nevertheless, the inflation rate remains below 2%, the target set by the Federal Open Market Committee (FOMC). This Economic Letter describes results from a model that explicitly accounts for the different dimensions of monetary policy to quantify the risks to the inflation forecast. This analysis suggests that inflation is expected to remain low through the end of 2016, and the uncertainty around the forecast is tilted to the downside, that is, the risk of lower inflation. In particular, the probability of low inflation by the end of 2016 is twice as high as the probability of high inflation—the opposite of historical projections. The analysis also suggests that the risk of high inflation collapsed in 2008 and has remained well below normal since. Importantly, according to the model, there is little evidence that monetary policy constitutes a major source of inflation risk.”