A sustained rise in medium-term inflation expectations would represent a threat to our price stability mandate and would not be tolerated.” [http://www.newyorkfed.org/newsevents/speeches/2011/dud110228.html]  6  BIS central bankers’ speeches  and salaries are reflecting heightened unemployment, and show no evidence that potential inflation concerns are placing upward pressure on wages and salaries. Core inflation rates tend to be a reasonable predictor of inflation in the intermediate term. Core inflation remains well below my long-run target for inflation. This gives us flexibility to focus on accommodative monetary policy doing what it can to promote more rapid growth in the economy. As Figure 18 illustrates, the percent of the adult population that is employed now is quite low in relation to recent history, and has shown only a slight improvement over the course of the recovery. So with significant slack in labor markets, stable inflation expectations, and core inflation well below our longer run target, there is currently no reason to slow the economy down with tighter monetary policy. Until we make more progress on both elements of the Federal Reserve’s mandate – employment and inflation – the current, accommodative stance of monetary policy is appropriate. Thank you.
The brief examines the relationship between trend inflation and commodity price increases and finds that evidence from recent decades supports the notion that commodity price changes do not affect the long-run inflation rate. Evidence from earlier decades suggests that effects on inflation expectations and wages played a key role in whether commodity price movements altered trend inflation. 2  Readers may be interested in “Oil and the Macroeconomy in a Changing World,” the proceedings of a 2010 symposium held at the Boston Fed to explore the interactions between energy prices, growth, and inflation – the determinants of oil prices and about the effect that oil prices have on the world economy. The proceedings are available at http://www.bostonfed.org/economic/conf/oil2010/index.htm  2  BIS central bankers’ speeches  The impact of recent supply shocks Now that you know my basic take on this key – and current – economic debate, allow me to flesh out my perspective with the supporting data and analysis. The full impact of the recent shocks to supply that I mentioned at the outset will likely emerge over time. But clearly there have been significant increases in a variety of food and energy prices. As Figure 1 illustrates, the recent turmoil in the Middle East has contributed to a significant increase in oil prices, which have risen to over $ a barrel.