That possibility of higher inflation caused us little concern at the time, largely because increased productivity growth was resulting in only limited increases in unit labor costs and heightened competition, driven by globalization, was thwarting employers’ ability to pass through those limited cost increases into prices.
Given the potential consequences of the Russian default, the benefits of the unusual policy action were judged to outweigh its costs. Such a cost-benefit analysis is an ongoing part of monetary policy decisionmaking and causes us to tip more toward monetary ease when a contractionary event, such as the Russian default, seems especially likely or the costs associated with it seem especially high.