At the same time, he said, the current situation may be different, in part because the Fed has more credibility than it did in prior episodes of high inflation, at least some of today's inflation is being driven by one-time pandemic-related factors, and the central bank has already taken early and aggressive action in order to squelch it.
"Unlike in the late 1960s and 1970s, the Federal Reserve is addressing the outbreak in inflation promptly and forcefully to maintain that credibility and to preserve the 'well anchored' property of long-term inflation expectations," Jefferson said.
He did not give any indication of how high he expects interest rates to need to go, or how long he expects the Fed to need to keep them there. His prepared remarks also did not address the implications of economic data released earlier on Friday showing inflation is accelerating rather than receding.
Jefferson also noted that wage growth is currently too high to be consistent with returning inflation to the Fed's 2% target in a "timely and sustainable fashion," a remark that suggests he expects demand for labor to need to cool more quickly than its current trajectory to bring down "stubbornly high" inflation in services excluding housing.
Still, he said, economic models such as those used to develop the research paper's arguments don't have all the information Fed policymakers need.
"Current inflation dynamics are being driven by some pandemic-specific factors not seen in the historical data," he said. "It follows that policymakers need to look at a broader range of factors to understand recent inflation dynamics." (Reporting by Ann Saphir; Editing by Paul Simao)
