is very accustomed to a world of inflation near 2 see lawrence m. ball ( 2013 ), “ the case for four percent inflation, ” central bank review, vol. 13 ( may ), pp. 17 – 31 ; and philippe andrade, jordi gali, herve le bihan, and julien matheron ( 2019 ), “ the optimal inflation target and the natural rate of interest, ” brookings papers on economic activity, fall, pp. 173 – 255. see richard h. clarida ( 2019 ), “ the federal reserve ’ s review of its monetary policy strategy, tools, and communication practices. ” speech delivered at the 2019 u. s. monetary policy forum, sponsored by the initiative on global markets at the university of chicago booth school of business, new york, february 22, https : / / www. federalreserve. gov / newsevents / speech / clarida20190222a. htm. - 12 percent, which has allowed households and businesses to operate with considerable certainty. research shows that such certainty is valuable for households and businesses to make sound financial decisions and to avoid economic distortions that could hinder economic growth. 8 my strong support for our consensus framework is predicated not only upon its new features designed to address inflation that falls too low, but also its commitment to prevent longer - term inflation expectations from rising materially above a level consistent with our 2 percent goal. in this sense, the current elevated rates of inflation are not challenging our new framework any more than they would have challenged our previous framework or, for that matter, most reasonable frameworks for conducting monetary policy. as i said earlier, when our price - stability and employment goals are not complementary, the framework calls for policy to depend on the remaining shortfall from our maximum - employment goal, on the extent to which inflation continues to exceed 2 percent, and on the amount of time we expect it will take for employment and inflation to meet our goals. i remain quite optimistic about the capacity and willingness of consumers and businesses to power a robust expansion as we put the covid event behind us, even with the headwinds coming from the supply side. but that forecast for growth and uncertainty about the resolution of supply constraints mean that there are upside risks to inflation next year. so my focus is beginning to turn more fully from the rapidly improving labor market to whether inflation begins its descent toward levels that are more consistent with our price - stability mandate, as

coming months, but also how far it will fall and if it will fall soon enough to avoid spurring a concerning rise in longer - term inflation expectations. i agree with my fomc colleagues and most private forecasters that inflation likely will decline considerably next year from its currently very elevated rate. for instance, most of the september summary of economic projections forecasts for pce inflation in 2022 were between 1. 9 and - 82. 3 percent, with a minimum of 1. 7 percent and a maximum of 3. 0 percent. 3 but i see significant upside risks to my current inflation outlook. supply constraints in production and distribution already have become more widespread and have lasted longer than most forecasters anticipated. as noted earlier, labor supply constraints are making it difficult for businesses to keep up with demand. this dynamic will continue to support robust wage growth, putting further upward pressure on prices. moreover, there is evidence in the past couple of months that a broader range of prices are beginning to increase at moderate rates, and i am closely watching those developments. the fundamental dilemma that we face at the fed right now is this : demand, augmented by unprecedented fiscal stimulus, has been outstripping a temporarily disrupted supply, leading to high inflation. but the fundamental productive capacity of our economy as it existed just before covid — and, thus, the ability to satisfy that demand without inflation — remains largely as it was, and the factors that are disrupting it appear to be transitory. looked at purely in that light, constraining demand now, to bring it into line with a transiently interrupted supply, would be premature. given the lags with which monetary policy acts, we could easily find that demand is damping just as supply is increasing, leading us to undershoot our inflation target — and, in the worst case, we could depress the incentives for supply to return, leading to an extended period of sluggish activity and unnecessarily low employment. but “ transitory ” does not necessarily mean “ short lived. ” indeed, we are discovering that it ’ s going to take more time than we had thought for supply to return to normal, and with demand already high during that time, i am monitoring the extent to the september 2021 summary of economic projections is available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / fomccalendars. htm. - 9whic