Many aspects of the college attendance decision are complex and hard to predict, especially for students from families without much experience with higher education. For example, research indicates that decisions about college attendance are highly correlated with an understanding of the future payoffs from attendance and particular majors.9 New York Fed research shows evidence of systematic underestimation of the average benefits—and overestimation of the costs—of a college education, with larger biases among lower-income and non-college households.10 Families may not realize that listed tuition prices may not be what a particular student actually pays. Moreover, misperceptions about the net return from a college degree can be consequential, influencing parents’ expectations and intentions for their children’s college attendance. Importantly, however, these expectations are not hardwired. Evidence from an information experiment indicates that students do respond to new information by revising their expectations and their education choices.11 This suggests that making information about higher education decisions more available to families—particularly those with less experience with higher education—is a promising way to expand economic mobility. I was fortunate as a child that I didn’t face this problem. Both my parents went to college and there was no doubt among us about the payoff from higher education. Another concern is the lack of college preparedness among new college entrants. Nearly seven out of 10 students entering public two-year institutions and four out of 10 students entering fouryear public institutions take remedial courses in college.12 Generally, these are courses they should have taken in high school.

While some of this year’s shortfall can be explained by one-off factors—such as the sharp fall in prices for cellular phone service—its persistence suggests that more fundamental structural changes may also be playing a role. These include the increased ability of prospective buyers to compare prices across different sellers quickly and easily, the shift in retail sales to online channels of distribution from traditional brick-and-mortar stores, and the consequences of these changes on brand loyalty and business pricing power. Over the coming months, I hope that we will be better able to differentiate between these competing explanations. If it turns out that structural changes have played a significant role, I would generally view this as a positive, rather than negative, development. It would imply that the U.S. economy could operate at a higher level of labor resource utilization without generating a troublesome large rise in inflation. More people could be put to work on a sustainable basis, enabling them to gain opportunities not just to earn greater income, but also to develop their skills and grow their human capital. Slightly above-trend growth is gradually tightening the U.S. labor market, which should support a rise in wage growth over time. When combined with a firmer import price trend—partly reflecting recent depreciation of the dollar—and the fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the FOMC’s 2 percent objective over the medium term.