Tom Barkin, Speech: The Evolution of Technological Disruption

“All that said, I don’t want to declare a long-term shift in the prevailing winds when we still don’t know exactly how the pandemic era will play out. Some changes may reverse in time — countries and companies notoriously have short memories. And never count disinflationary forces out. The pandemic accelerated e-commerce, so maybe its enablement of price shopping will spread even faster. New technologies can always come along in the way that fracking did. Pressure on labor could accelerate investments in productivity, furthering technologies such as artificial intelligence and robotics. Remote work — one of the themes of this conference — could increase the potential supply of labor for certain jobs and thereby reduce wages. And as businesses configure to enable more remote work, they might actually increase their openness to more offshoring. Or perhaps government policies will deliver increased labor participation, as Japan has done to increase the participation rates of older workers.”

“So, it is of course possible that we could return to pre-pandemic wind conditions. But what if we are in a new era — one in which we face inflationary headwinds? What would that disruption mean for our ability to meet our inflation mandate? Our goal, 2 percent target inflation, wouldn’t change, nor would our longer-run ability to meet that goal, but the appropriate path to achieve it could.”

“We would be more likely to face periods with real forces imparting near-term inflationary pressures. Consequently, history may be less of a precedent for appropriate policy. These pressures could make “looking through” short-term shocks more difficult. They could make gradual rate increase paths less effective. They could make market functioning interventions somewhat trickier. As a result, our efforts to stabilize inflation expectations could require periods where we tighten monetary policy more than has been our recent pattern. You might think of this as leaning against the wind. Doing so would be consistent with our flexible average inflation targeting framework.”