Has the FED Fallen behind the Curve? Evidence from VAR models

•We ask whether the FED has riskily delayed the exit from its large monetary easing.•We focus on the effects of monetary policy on US PCE core inflation.•Monetary policy shocks are not pushing inflation much beyond its baseline.•Scenario analysis shows that the FED's stance is in line with macroeconomic dynamics.•PCE core inflation will likely lie below the FED's target in 2017.

We evaluate the role of US monetary policy in shaping inflation and economic activity by means of a medium-scale Bayesian VAR model, where the ZLB and the unconventional measures are addressed by using a shadow interest rate. The historical decomposition and a conditional forecast scenario show that the FED's stance is in line with GDP and inflation dynamics. Moreover, core inflation will likely lie below its target in 2017.