Podcast: Cleveland Fed director on all things inflation and Covid-19

Robert Rich discusses money supply growth and muted inflation, plus new Fed research


The large increase in money supply during recent months may not have caused higher inflation because people are paying off debt rather than spending, says Robert Rich, director of the Federal Reserve Bank of Cleveland’s Center for Inflation Research.

Speaking on Central Banking’s new FedSpeak podcast, Rich says that typical monetary assumptions associated with an increase in the money supply have not played out during the pandemic.

“[Increases in the money supply have not gone into] exchanges of goods and services, they have gone into exchanges of financial assets,” he says.

Household debt fell by $34 billion in the second quarter of 2020, a recent New York Fed report shows. This marks the first decline since the second quarter of 2014 and the largest fall since first quarter of 2013, the report shows.

Rich notes that greater uncertainty during the pandemic has also put further downward pressure on already low-trending velocity of cash in recent years. The velocity is the rate at which cash get exchanged in the system.

“The path for inflation, like that for many other variables, is really going to depend on the views about the development of medical interventions to treat and prevent Covid-19,” he says, noting that the Center for Inflation Research is currently creating new inflation measures with a pandemic-specific basket of goods.

Rich also discusses some of the recent studies published by the centre, on topics including how economic growth might have replaced economic slack in the Phillips curve, and a new, more accurate, measure of wage growth.

“[The research] suggests you are not going to see inflation staying around where it has been but, in fact, you would see it reacting to this, so down in [the second quarter],” Rich says.

He argues the Phillips curve “is still there”, but the underlying variables appear to have shifted.

Rich also shares his views on some research from the Center for Inflation Research and elsewhere on alternative inflation targets.

The Fed is close to concluding its monetary policy framework review, and optimal inflation targets have been a key focal point. Some Federal Open Market Committee members, including Lael Brainard and Patrick Harker, have recently come out in favour of a framework that would allow the Fed to temporarily overshoot the inflation target.


00:00 Introduction

01:22 Center for Inflation Research

09:19 Covid-19 and inflation

16:50 Measuring inflation during Covid-19

18:45 Economic growth replacing economic slack in the Phillips curve

26:29 More accurate wage growth measure

33:50 Impacts of individual wage growth and firm-based wage growth for inflation

37:10 Alternative inflation targets

41:45 Monetarism and Covid-19

To hear the full podcast, listen in the player above, or download. Future podcasts in our CB On Air: Fed Speak series will be uploaded to centralbanking.com. CB On Air is also available via iTunes or podcast apps and from Google Podcasts (Android only).

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