Mary Daly, Speech: Steering Toward Sustainable Growth

“Long periods of high inflation, even if it is projected to come down, can seep into expectations, leading people to anticipate further price increases. This is especially salient now, with prices for food and gas making headlines. Research tells us that these prices heavily influence consumers’ beliefs about future inflation.”

“The longer realized inflation remains high, the more risk there is that rising prices will become part of public psychology. And once psychology shifts, it is hard to bring it back.”

“We learned this lesson the hard way. The last time we experienced this kind of elevated inflation was in the 1970s—some of us remember that time. Americans faced a steady drumbeat of rising prices that lasted for over a decade. By the early 1980s, high inflation had become firmly entrenched in the public’s psyche. To get things under control, the Fed had to implement a series of steep interest rate hikes. They worked, but the correction was painful.”

“This is a history no one wants to repeat. And it’s why the Fed is taking actions today, far earlier than in the 1970s, to tighten policy, rebalance demand and supply, and ensure that both of our dual mandate goals are achieved.”