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Richmond Fed Program Demystifies Inflation

Speakers sitting on stage at District Dialogues

Richmond Fed leaders and two leading voices on economic conditions in the U.S. spoke to a captive audience earlier this month about what causes inflation, the efforts underway to curb it and how it impacts people’s daily lives.

The Bank’s Nov. 7 public discussion program, District Dialogues: Demystifying Inflation, featured Bank President Tom Barkin; Director of Research Kartik B. Athreya; Joanne Hsu, director of the Surveys of Consumers and a Research Associate Professor at the Institute for Social Research at the University of Michigan; and Bill Crutchfield, founder of Crutchfield, one of the largest electronic online retailers in the nation. The event was moderated by Richmond Fed Regional Executive Renee Haltom.

Haltom kicked off the program, which was the first in the District Dialogues 2022–2023 season, by sharing the motivation for the event.

“When inflation is high, it’s the responsibility of the central bank of the United States to take time to explain it to the public and to be as transparent as possible. We care about inflation and we’re going to do what we need to do to keep it down.”

Haltom also explained that the Fed targets 2% inflation over time. “That’s the measure that we’ve said is consistent with price stability.”

She went on to discuss the drivers of inflation, the impact that growing wages have on price pressure and how the Fed’s policy rates have responded. She then introduced Barkin, who, in addition to leading the Richmond Fed, serves on the Federal Open Market Committee, which sets interest rates.

Barkin shared his views on the many factors contributing to current economic conditions, including childcare and elder care responsibilities, health care needs, immigration issues, worker productivity, weather-related issues, Russia’s invasion of Ukraine and more. In addition, Barkin said, “The pandemic and our responses to the pandemic unleashed a whole series of physical and human supply shocks…. In normal times, each might have only had a fleeting impact on inflation. But during COVID, each piled on more price pressure…. You can point fingers in lots of directions. It’s part fiscal and it’s part monetary…. For me, it’s the accumulation of so many inflationary pressures at once.”

Barkin was followed by a panel that featured Athreya, Hsu and Crutchfield. Haltom noted the range of perspectives represented on the panel.

“We’ve got a researcher and supporter of the policy process, someone who studies the consumer and in particular, consumer expectations, and then someone who actually sets prices,” she said.

Crutchfield shared that the inflation his industry is experiencing is related to supply chain challenges and semiconductor shortages.

“What that has meant is if people want to buy a home stereo receiver or car unit or a drone or camera, they’ve had to step up to the higher-priced products, because there just wasn’t the availability of lower-priced products,” Crutchfield said. “And this has been characteristic throughout other industries as well.”

Haltom continued the conversation with event panelist Hsu, whose work at the University of Michigan includes overseeing a survey instrument that has been running since 1946 to measure how consumers feel about the economy and inflation.

“I’m watching all the data come in from American consumers across the country, telling us what they’re feeling, what they’re facing and their perception of how much high prices are impacting their pocketbooks,” Hsu said. “Inflation expectations have obviously increased over the last year; but what has been really interesting is that long-term expectations haven’t increased nearly as much as I might have expected. Consumers really have a variety of opinions about where inflation is going. We haven’t seen this level of disagreement since the 1970s.”

Athreya addressed concerns that the country is heading for a repeat of that decade’s high inflation. “One thing that is decisively different from the ‘70s is that we have an inflation target,” Athreya continued. “The audience here and online does not have to wake up and think, ‘I wonder what [the FOMC] means when they say we’re going to return inflation to target?’ The tool we now have allows policymakers and the FOMC to speak with one voice. The unity in terms of saying ‘Inflation is a problem and we’re on course to get it taken care of’ is a level of clarity that wasn’t present decades ago.”

The program concluded with an audience question and answer session and with the speakers’ shared sentiment that continued persistence in addressing inflation is the best way forward.

Barkin ended on a positive note: “The hardest thing to have in this kind of environment is perspective. The 10 years before COVID were some of the most stable years in modern economic history. So in terms of the [current] GDP or price increases, everything seems crazy. There’s a bit of making sure that we see the longer path as we go through this particular very volatile place, and I think when we look at the longer path, whether it be historical or forecasting, we see returning to a stable place. That means, of course, that we’ve got to do what we’ve got to do to get there.”

View a recording of District Dialogues: Demystifying Inflation on the Bank's YouTube channel. The next discussion in the District Dialogues 2022–2023 season will take place on February 23, 2023, and will focus on highs and lows in the housing market. Registration for the program is now open.

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