Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

So, indeed, I think this combination of weaker economic growth and higher inflation is an unfortunate situation for you as policymakers. I do think there are some upside risks that you face on inflation, and the recent rise in oil prices probably intensifies those upside risks. We are taking some comfort from two other pieces of information in the constellation of the inflation data that the process isn’t slipping away to the upside on inflation. One is, as Bill noted, that we haven’t really seen any deterioration in the TIPS-based measures of inflation expectations. We have seen an uptick in the Reuters/Michigan survey of households in the last month or so, on both near-term and long-term inflation expectations. That does tend to happen in periods when gasoline prices are spiking up. I would hate to throw that observation out completely, but I guess as we look at this, we don’t really see as yet convincing evidence that there has been a deterioration in inflation expectations. The other thing is that we haven’t really seen anything in the way of serious deterioration on the labor cost side. So those two things combine, at least in my mind, not to eliminate but probably to limit some of the upside risks that you’re facing on the inflation side. But, clearly, anecdotes are there—not just the data but also anecdotes—that suggest that businesses are facing some considerable cost pressures associated with higher energy and other commodity prices.

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