Ekaterina Peneva, Jeremy Rudd, and Daniel VillarThis paper examines the Board staff’s inflation forecast misses over the years following the COVID-19 outbreak, focusing on a timeline of what staff members knew when and lessons learned along the way. The staff significantly underestimated both the size and persistence of the inflationary surge that followed the reopening of the U.S. economy. As a result, staff members made various changes to their forecasting procedures, including using new types of data to inform their assessment of supply–demand imbalances in product and labor markets and to guide their judgmental forecast. Throughout, an important difficulty was the lack of similar historical episodes upon which to base a quantitative analysis. Over time, the innovations helped improve the staff’s ability to understand and forecast inflation during this period. However, considerable uncertainty remains about the quantitative contributions of the various drivers of the pandemic-period inflation as well as the applicability of the lessons from this episode for forecasting.
Nothing contributes so much to the prosperity and happiness of a country as high profits