Output is currently below potential. What are the implications for inflation?

How should the Fed set its policy rate to achieve its twin goals? What will happen to the growth in aggregate demand as a result? Should it then be growing faster or slower than potential output (aggregate supply)? At what point will the Fed want to readjust its policy stance to avoid an inflation problem? At this point, what should it seek for the relationship between aggregate demand and aggregate supply? What will happen to inflation when this is achieved? What will be the unemployment rate?