Esther George, Speech: Tightening Monetary Policy in a Tight Economy
“Second, in addition to the oft-cited long and variable lags, the transmission of higher policy rates and the associated tightening in financial conditions to spending, employment, and inflation is subject to considerable uncertainty. For example, the shift in spending away from services to housing and durable goods during the pandemic may make the economy more sensitive to higher interest rates. Another possibility is that the significant accumulation of liquid savings during the pandemic will dampen the effects of higher interest rates on spending and ultimately inflation. Given this range of outcomes, it is unclear just how high rates will need to move in order to bring inflation down. These dynamics suggest it will be particularly important to observe how the economy is adapting to changes in monetary policy.”