Pandemic Ebbs and Flows: Economic Data, Inflation Concerns, and Policymaking
May 5, 2021
What Comes Next for the Economy and Monetary Policy?
Boston College Carroll School of Management
Six Takeaways from Boston Fed President Eric Rosengren’s May 5, 2021 Remarks
- Takeaway: The economy is seeing rapid growth in real output and notable improvements in payroll employment, relative to the depths of the pandemic. But despite improvements on public health and economic activity, significant slack remains in the economy as millions have not yet regained jobs.
Excerpt: “The unemployment rate does not include the millions who have left the workforce since the pandemic began. The labor force participation rate, measured by the percent of the population in the workforce, whether employed or unemployed, remains depressed. Therefore, while rapid economic growth is very good news, it was, and still is, badly needed to offset the sizable shock that occurred with the COVID-19 pandemic.”
- Takeaway: Some analysts are worried inflation could pick up significantly. It is likely that several temporary factors will make measured inflation this spring higher than its underlying trend – but these factors are largely the result of the ebbs and flows of the pandemic, which has produced unusual patterns in monthly economic data, and they seem unlikely to have an enduring impact.
Excerpt: “We should expect that measured inflation will accelerate this spring. However, my view is that this acceleration in the rate of price increases is likely to prove temporary. … To date, inflation expectations and the underlying inflation rate look to be stable.”
- Takeaway: The temporary factors likely to push up inflation numbers this spring include supply disruptions, increased consumer spending after months of pent-up demand, and higher prices for commodities such as oil.
Excerpt: “Oil prices, which declined dramatically as travel fell, have increased significantly of late. Pent-up demand for goods has resulted in the rise of shipping costs, and delays in unloading at ports have made it difficult for many businesses to restock their shelves. All these factors will likely result in temporary increases in prices.”
- Takeaway: The pandemic’s fluctuations have affected economic indicators besides inflation, and one example is social-distance-sensitive spending. Room for recovery remains in these kinds of indicators, and that’s reason for optimism about continued economic growth.
Excerpt: “While much progress has been made, one reason to continue to expect strong growth in employment and real GDP going forward is that there are a variety of industries still impacted by the pandemic. Policymakers expect these effects to further diminish as a higher percentage of the population is vaccinated.”
- Takeaway: Policymakers will need to be vigilant, watching that the post-pandemic environment does not bring structural changes with implications for inflation. It will be particularly important to see whether wages and prices continue to be relatively unresponsive to a tightening labor market.
Excerpt: “Policymakers need to be alert to potential changes to the economy. … Both spending patterns and work environments are likely to be altered by the pandemic. It is too early to know whether the economic relationships we observed pre-pandemic will behave similarly in the post-pandemic era.”
- Takeaway: Despite the ebbs and flows of the data, inflation is expected to remain close to 2 percent. This should allow monetary policymakers to be patient in removing accommodation…until more progress in the labor market has occurred.
Excerpt: “My perspective is that the emphasis on actual outcomes rather than forecasts of rising inflationary pressures when setting monetary policy appears justified.”