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Report
Transitory or Persistent? What the Frequency of Price Changes May Tell Us about Inflation
This brief shows how distinguishing between the dynamics of frequently and infrequently adjusted prices can provide insight into the nature of inflation—whether inflation pressures are new and transitory or sustained and spreading. It breaks down the non-rent portion of the Consumer Price Index into two subindexes, one for products that change prices frequently (the flexible sector) and one for products that change prices infrequently (the sticky sector).
Report
Pricing in the New Year: Why Inflation Behaves Differently at the Start of the Year
Each year from 2023 through 2025, monthly inflation, as measured by the US Bureau of Labor Statistics consumer price index, was generally higher in January compared with the rest of the year. This brief presents three reasons that collectively may explain why inflation has been especially elevated at the beginning of recent calendar years.
Report
The Roles of Mobility and Masks in the Spread of COVID-19
This policy brief analyzes the effects of COVID-19 mitigation policies, those that restrict movement and activity and those that advocate public health best practices. The analysis uses US state-level data to estimate the effects of mobility, mask mandates, and compliance with these mandates on the numbers of COVID-19 cases and deaths. A one-standard-deviation increase in mobility is associated with an 11 to 20 basis points greater rate of growth in case counts; a mask mandate can offset about half of this increase. Slower growth in case counts ultimately translates into slower growth in ...
Report
Consumption Spending during the COVID-19 Pandemic
We use a novel empirical approach to decompose the impact of different economic, demographic, and COVID-19–related factors (such as lockdowns, case counts, and vaccination rates) on consumption spending on a week-by-week basis during the pandemic. This allows us to study how demographic and economic groups were differentially affected by the pandemic while crucially controlling for other factors. Our results imply that Hispanic and college-educated populations showed particularly large and persistent declines in relative spending. We also compute the relative importance of factors in ...
Report
The Distribution of Sectoral Price Changes and Recent Inflation Developments
Inflation has declined across many sectors so far in 2023, but the distribution of sectoral price changes still shows atypical features, such as bimodality in which substantial masses of sectors record price changes both below and above the Federal Reserve’s 2 percent inflation target. Such bimodality was not typical before the pandemic, suggesting that sector-specific price adjustments are now playing a more important role in inflation developments. The recent slowdown in inflation was partly caused by a larger-than-normal share of the consumption basket being located in the left tail of ...
Report
What Is Driving Inflation—Besides the Usual Culprits?
The prices of services associated with low-skill workers have been a key driver of “supercore” inflation, which excludes food, energy prices, and shelter prices. Low-skill-services inflation seems to be tied to faster wage growth in those industries coming out of the COVID-19 pandemic. Wage growth in low-skill services has begun to decline, suggesting that there may be lower inflation in these industries going forward. At the same time, wage growth in high-skill services has recently accelerated, suggesting that there may be higher inflation in these industries in the near future.
Report
Productivity Improvements and Markup Normalization Can Support Further Wage Gains without Inflationary Pressures
Wage inflation remains higher than it was before the onset of the COVID-19 pandemic, raising concerns that it could hinder progress toward a return of price inflation to the Federal Reserve’s 2 percent target. The impact of wage inflation on price inflation, however, cannot be considered independently of the behavior of productivity and firms’ markups. In that context, there are scenarios in which wage inflation could stay above trend for a few more quarters without contributing to higher price inflation.
Working Paper
Monetary Policy, Uncertainty, and Communications
We review the design and communication of monetary policy strategies that take into account risks and uncertainty. A key element in a robust monetary strategy is the concept of risk management, which is the weighing of key risks when setting policy. When risks to the outlook are balanced, the baseline outlook may be sufficient to guide policy decisions. However, risk-management considerations become important when risks are asymmetric. We discuss how robust simple interest rate rules and optimal control policy can incorporate risk-management considerations into the design of a monetary ...
Working Paper
The Price-Change Statistics We’ve Weighted For
The real effects of monetary policy depend on price stickiness. Existing studies that measure aggregate stickiness using US consumer price index microdata hold the consumption basket fixed. This yields a lower level of stickiness in 2024 compared with 1978. We show instead that stickiness is unchanged. Although individual products now change prices more frequently, the effect is largely offset by shifts in consumer spending, notably toward services with stickier prices. These consumption-basket shifts reduce the estimated decline in monetary non neutrality by 25 percentage points, suggesting ...
Working Paper
Do Actions Match Words? Reassessing the Taylor Rule in an Emerging-Market Context
Backward-looking Taylor rules, widely used to characterize central bank behavior, can misrepresent policy when central banks base decisions on forecasts. This mischaracterization affects the assessment of credibility, defined as alignment between a central bank’s words and actions. We examine this issue in the context of India’s adoption of flexible inflation targeting (FIT) in 2015. Text analysis shows that the Reserve Bank of India’s (RBI) communication became more inflation-focused and forward-looking after FIT adoption. Yet backward-looking Taylor rules show no robust increase in ...