Christopher Waller, Speech: Reflections on Monetary Policy in 2021

“First, I want to emphasize that forecasting is hard for everyone, especially in a pandemic. In terms of missing on inflation, policymakers’ projections looked very much like most of the public’s. For example, as shown in table 1, the median SEP forecast for 2021 Q4/Q4 PCE inflation was very similar to the consensus from the Blue Chip, which is a compilation of private sector forecasts. In short, nearly everyone was behind the curve when it came to forecasting the magnitude and persistence of inflation.”

“Third, one must account for setting policy in real time. The Committee was getting mixed signals from the labor market data in August and September. Two consecutive weak job reports didn’t square with a rapidly falling unemployment rate … As the revisions came in, a consensus grew that the labor market was much stronger than we originally thought. If we knew then what we know now, I believe the Committee would have accelerated tapering and raised rates sooner. But no one knew, and that’s the nature of making monetary policy in real time.”