I have been writing, indeed many times, about the challenge of allocating responsibility for the sharp and persistent increase in inflation to supply- and demand-driven forces. Their relative roles are relevant to—indeed, effectively determine—what monetary policy can and cannot achieve and, therefore, are relevant to what the appropriate monetary policy response is. Here I focus […]
Category: Meyer’s Musings
In the empirical inertial Phillips curve I use today, price inflation does not depend on wage inflation, but rather the unemployment rate gap, lagged inflation, and inflation expectations. And this is what I see as the conventional specification of the Phillips curve today. However, that’s a dramatic break from how I thought about inflation dynamics […]
Yes, the FOMC is behind the curve. A dangerous place to be, especially if the FOMC is very far behind the curve, as I believe is the case today. When that happens, the probability of recession is higher. On Friday, following the jobs report, we indicated that the risks to our call were more firmly […]
I have long said that forecasting the inflation rate of 2022 would be difficult. Still, inflation (both actual and forecasted) will determine the timing of liftoff. Inflation in 2022 will depend on not only underlying inflation (whatever that is today) but also the persistence of various temporary factors, such as supply shortages and reopening demand. […]
While the new policy framework calls for overshooting the 2% inflation objective after a period of persistent undershooting, it does not explicitly describe the conduct of monetary policy once the overshoot has been achieved and the Committee wants to move inflation back to 2%. Clarida’s Policy Rule for the New FrameworkClarida has said, “Consistent with […]
In prepared remarks today, Brainard clarified the meaning of maximum employment as a precondition for liftoff. Brainard’s appearance was bookended by a couple of appearances by Clarida. Chair Powell also spoke today, appearing for a second day for the semiannual monetary policy testimony, this time before the House Financial Services Committee. We covered yesterday’s appearance […]