Suggested citation: "How Can Inflation be Considered Low When Food and Gas Prices Are So High?,” Federal Reserve Bank of Cleveland, Annual Report 2010: Price Stability: Why We Seek It and How Best to Achieve It, 12.31.2010.
Empirical studies find that the link between inflation and economic slack has weakened in recent decades, a development that could hamper monetary policymakers as they aim to achieve their inflation objective. We show that while the role of economic slack has diminished, economic growth has become a significant driver of inflation dynamics, indicating that the link between inflation and economic activity remains but the relevant gauge of activity has changed. The new evidence suggests that the COVID-19-related recession could induce substantial disinflationary pressure.
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As the Federal Reserve has become more transparent about its decisions on the federal funds target rate, the general public has begun to regard the rate as not only a benchmark interest rate, but also as a signal about the state of the economy. However, the specific information considered by the public to be revealed is not clearly understood. We investigate this question and find that the information revealed by monetary policy decisions is regarding future output growth, not inflation, and that such an information effect is theoretically optimal and does not make interest-rate policies self-defeating.
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Skills-based hiring practices—those that prioritize skills necessary to succeed in a role over formal educational credentials—show potential for securing higher positions for lower-wage workers and helping employers get the workers they need.
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The Federal Reserve Bank of Cleveland and the Office of Financial Research will hold the 2020 Financial Stability conference on November 19-20, 2020, in Cleveland, OH.
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