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Working Paper
Inflation Since the Pandemic: Lessons and Challenges
This paper reviews the drivers of the post-pandemic U.S. inflation surge and subsequent decline, including the behavior and role of inflation expectations. The sharp rise in inflation reflected severe imbalances between supply and demand stemming from the shocks of the pandemic and the policy response. Measures of short-term inflation expectations increased alongside realized inflation, especially those of households and firms, which may have contributed to inflation’s persistence through price- and wage-setting behavior. However, measures of longer-term inflation expectations remained ...
Working Paper
Inflation since the Pandemic: Lessons and Challenges
This paper reviews the drivers of the post-pandemic U.S. inflation surge and subsequent decline, including the behavior and role of inflation expectations. The sharp rise in inflation reflected severe imbalances between supply and demand stemming from the shocks of the pandemic and the policy response. Measures of short-term inflation expectations increased alongside realized inflation, especially those of households and firms, which may have contributed to inflation's persistence through price- and wage-setting behavior. However, measures of longer-term inflation expectations remained ...
Journal Article
Financial Stress May Do Relatively Little to Reduce Inflation
Financial stress has risen in the wake of recent bank failures. At the same time, the Federal Reserve has been tightening the stance of monetary policy to reduce elevated inflation. While both banking stress and tighter monetary policy can slow economic activity, historical evidence suggests that financial stress may be less effective in reducing inflation.
Journal Article
Policymakers Have Options for Additional Accommodation: Forward Guidance and Yield Curve Control
With the federal funds rate near zero, policymakers are evaluating options for providing additional monetary policy accommodation, including a tool known as yield curve control. We find that despite low nominal Treasury yields, some scope for additional accommodation remains should policymakers deem it appropriate. However, we argue that forward guidance about future interest rates could deliver much, though not all, of the accommodation of yield curve control.
Journal Article
Why Are Americans Saving So Much of Their Income?
For much of 2020, Americans have saved a greater share of their income than ever before. This increase in savings appears to be predominantly driven by precautionary motives. Therefore, consumers may be reluctant to draw down these savings in the future to support spending.
Journal Article
Assessing Market Conditions ahead of Quantitative Tightening
Quantitative tightening (QT)—the reduction in the Federal Reserve’s balance sheet—will transfer a significant amount of Treasury and agency mortgage-backed securities to investors. This transfer will be larger than the first endeavor with QT in 2017 and will occur at a time when financial markets are strained, suggesting this round of QT has the potential to be more disruptive compared with the benign start to the 2017 runoff.
Journal Article
Gasoline Prices Unlikely to Bring Down Inflation in 2023
Gasoline prices can influence inflation both directly (by changing prices at the pump) and indirectly (by shaping consumers’ inflation expectations). Through these channels, gasoline prices have played an important role in the run-up and recent decline in inflation. Although gasoline prices have declined from their all-time highs, they are expected to remain relatively stable in 2023. As a result, gasoline prices are unlikely to deliver further reductions in either inflation or inflation expectations this year.
Journal Article
A Tight Labor Market Could Keep Rent Inflation Elevated
Rent inflation responds more to labor market conditions compared with other components of inflation. We attribute this link between labor market tightness and rent inflation to greater demand for rental units afforded by job gains and wage growth. Although online measures of asking rents currently suggest official measures of rent inflation will decline, we caution that rent inflation is likely to remain above pre-pandemic levels so long as the labor market remains tight.
Journal Article
Despite High Inflation, Longer-Term Inflation Expectations Remain Well Anchored
The Federal Reserve’s long-run 2 percent inflation target is intended to prevent periods of high inflation from becoming embedded in longer-term inflation expectations. However, inflation has remained above the Fed’s target for over three years, increasing the risk that longer-term inflation expectations could become unanchored. Building on our previous research, we study recent market reactions to inflation news and find that longer-term inflation expectations appear to remain well anchored.
Journal Article
Considerations for the Longer-Run Maturity Composition of the Federal Reserve’s Treasury Portfolio
The Federal Reserve’s Treasury portfolio is weighted toward long-duration assets, reflecting large-scale asset purchases deployed after the financial crisis and again during the pandemic. In the longer run, policymakers may prefer to return to a shorter-duration Treasury portfolio like the Fed maintained before 2008. However, the exact composition of the portfolio will depend on how policymakers balance competing considerations: policy space, interest rate risk, market neutrality, and safe-asset provision.