Governor Brainard warned that “we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target.” She cited uncertainty about the Phillips Curve–“in today’s economy, there are reasons to worry that the Phillips curve will not prove very reliable in boosting inflation as resource utilization tightens”–an issue we discussed recently (see Trouble with the Phillips Curve).
On Hurricane Harvey, Brainard said that it would take some time to assess the macroeconomic impact. Nevertheless, she noted that it “creates uncertainty about drilling in coming months,” thus affecting output growth: “Based on past experience, it appears likely that the hurricane will have a notable effect on GDP in the current quarter, although output is likely to rebound by the end of the year.” She saw any spike in gasoline prices as “short lived” but said the effects are “uncertain and will depend on the extent of damage to refining capacity.” As a result, she expected an increase in gasoline prices to deliver a “temporary” boost to headline inflation, but pointed out that “temporary factors, by their nature, have little implication for the underlying trend in inflation.”