Remarks for the Panel Discussion “Why Did We Miscast Inflation?”

By Susan M. Collins

February 24, 2023

New York

2023 U.S. Monetary Policy Forum

The Initiative on Global Markets at the University of Chicago Booth School of Business

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Takeaways from Boston Fed President Susan M. Collins’ February 24, 2023 Remarks

Inflation remains too high. I anticipate further rate increases to reach a sufficiently restrictive level, then holding there for some, perhaps extended, time. My views will continue to be based on a holistic assessment of available information. And while aware of the risks and uncertainties, I remain optimistic there is a path to restoring price stability without a significant downturn.
The root of the inflation surprise was an imbalance between demand and supply. During 2021-22, realized demand exceeded supply, and forecasters were overly optimistic about supply recovering to meet the increase in demand as the economy reopened. The interaction of supply chain bottlenecks and constraints to labor supply compounded the forecasting misses. Supply chains were under strain due to continued bouts of COVID variants; and later, Russia’s war in Ukraine.
My view is that, in 2021 – in the aftermath of the deep pandemic downturn, in the face of significant continued uncertainty, and with inflation expectations in a reasonable range – supporting the economy versus pre-empting an inflation surge that few were forecasting seemed a reasoned decision.
Policy lessons from this still-evolving episode include that capacity constraints can lead to a less favorable trade-off between inflation and unemployment – and this potentially has implications for the future conduct of monetary policy, as we at the Fed fulfill our dual mandate. Furthermore, I’ll observe that additional wide-ranging indicators can be especially helpful for evaluating policy options in unusual contexts.