President and Chief Executive OfficerDr. Raphael W. Bostic is president and chief executive officer of the Federal Reserve Bank of Atlanta. He is a participant on the Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System.
Message from the President
Observe and Adapt: Appropriate Monetary Policy in the Face of Inflation
By Raphael Bostic, President and Chief Executive Officer
February 1, 2022
For 30-plus years, the inflation portion of the Federal Reserve's dual mandate has not been a serious concern for most Americans. Ever since Paul Volcker's Fed famously tamed the rampant inflation of the 1970s by raising interest rates well into double digits, inflation has rarely been higher than 3 percent, and often far lower. Indeed, in the eight years since the Fed established a 2 percent level of inflation for the core Personal Consumption Expenditures (PCE) price index as its target, inflation struggled to reach that level.
The COVID-19 pandemic changed that. As bars and restaurants closed, stores shuttered, and people stopped traveling, prices fell sharply. In April 2020, the core PCE price index posted its second largest one-month decline in the history of the series (going back to 1959), and in a few short months, its year-over-year growth rate had fallen by a full percentage point from 1.9 percent to 0.9 percent (from February 2020 to April 2020).
However, the rebound was fast and furious. By late 2021, inflation readings from the core PCE price index and its cousin, the Consumer Price Index, were at levels not seen since those Volcker years.
Though inflation had not been a problem for many years, the Atlanta Fed research staff and I recognized that it could again become a concern. Over the years, we continued to explore ways and develop tools to study and track inflation. With an eye toward training a bright light on the forces that shape inflation, in November 2020, we began to publish the Underlying Inflation Dashboard. Our economists had employed this tool for a while, and we made it public to share the important determinants of inflation that we monitor.
Our close attention to underlying inflation dynamics has yielded results. I stated in the spring of 2021 that we were on alert for signals that inflationary pressures could persist longer than most expected. We noted starting in early fall last year that upward price pressures had broadened beyond goods directly tied to the pandemic. In this speech from early October 2021, I noted that the inflationary episode was unlikely to pass quickly, offered that as policymakers we should thus cease describing it as "transitory," and, finally, argued that inflation warranted a more forceful policy response.
We have since continually canvassed business contacts across the Southeast about their experiences and plans in this higher inflation environment. One unmistakable theme has emerged: firms' responses to what at first seemed short-term problems like supply chain constraints and labor shortages could become permanent shifts that change the long-run trajectory of inflation.
Instead of simply waiting out supply and production problems, many executives are starting to seek new or redundant suppliers. These businesses are changing inventory systems from "just in time" to "just in case," and taking other steps to insulate themselves from future severe supply disruptions. Undoubtedly, many of these efforts involve tradeoffs between efficient, lean production methods and costlier but less vulnerable supply chain configurations. If enough firms take those types of decisions, then they could influence long-run inflation expectations and subsequently actual inflation.
My staff and I have been vocal publicly and within the Federal Open Market Committee about our inflation concerns. We are not alone in that stance, of course. The Committee has moved to quickly end its large-scale asset purchases, and many members including myself have publicly expressed support for taking further measures soon to remove emergency policy accommodation. The economy is strong enough that emergency levels of accommodation are no longer warranted, and, if left in place, they could fuel already-high inflation. So, the primary goal of these latest policy actions is to ensure that longer-run inflation expectations do not become dangerously untethered, lest elevated inflation become cemented into our economy for years to come.
Many of you probably wonder why we pay so much attention to what people think inflation will be. Put simply, the more likely it is that businesses and workers begin to believe that inflation will remain elevated, the more likely they are to alter their habits in ways that can lead to inflation. For example, should workers ask for markedly higher wages because they think the prices of groceries and other staples will rise significantly, then that can lead to increased costs that businesses pass through in the form of, yes, higher prices for those and other goods.
Expectations of high inflation, then, can be self-fulfilling. So, there is a real danger in expectations of inflation over the long haul becoming "unanchored," as we central bankers put it, from around 2 percent and rising to, say, 4 percent or higher.
Our Business Inflation Expectations survey and other sources show that longer-run inflation expectations among businesses and consumers in fact have climbed, but not enough to suggest that expectations are dangerously unanchored. Still, the mostly pandemic-induced episodic price pressures could grind on long enough to fundamentally alter expectations. I definitely worry about that.
In the coming months, I plan to be observant and adaptable as I consider where appropriate policy is going. I will closely observe the upcoming inflation data releases to see if elevated levels are persisting. I'll particularly home in on monthly inflation changes and will be looking to see if they decline steadily over the next couple of months.
As for being adaptable, I will adjust my view of appropriate policy based on my observations. If monthly price changes decline, the risk of longer-run inflation expectations becoming unanchored will fall, which will be good news indeed and should not warrant a change in what I think our policy approach should be, which is currently three interest rate hikes this year. By contrast, if monthly changes remain high or even increase, then inflation expectation risks will rise as well, which would lead me to adjust my view in the direction of more aggressive action. Again, in monitoring inflation, my watchwords are observe and adapt.
Related links from the Atlanta Fed
"The Phillips Curve during the Pandemic: Bringing Regional Data to Bear" (Policy Hub Papers, no. 11-2021)
"'It's Not Straightforward': An Atlanta Fed Economist Discusses Measuring Inflation" (Economy Matters, February 2021)
"Unit Cost Expectations and Uncertainty: Firms' Perspectives on Inflation" (Working Paper 2021-12a)
"The Impact of the COVID-19 Pandemic on Business Expectations" (Working Paper 2020-17a)
The Fed Explains Inflation (video)
Sticky-Price CPI (tool)
Related links from other sources
Inflation 101 (Cleveland Fed)
Dr. Raphael W. Bostic took office June 5, 2017, as the 15th president and chief executive officer of the Federal Reserve Bank of Atlanta. He is responsible for all the Bank's activities, including monetary policy, bank supervision and regulation, and payment services. He serves on the Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System.
From 2012 to 2017, Bostic was the Judith and John Bedrosian Chair in Governance and the Public Enterprise at the Sol Price School of Public Policy at the University of Southern California (USC).
He arrived at USC in 2001 and served as a professor in the School of Policy, Planning, and Development. His research has spanned many fields, including home ownership, housing finance, neighborhood change, and the role of institutions in shaping policy effectiveness. He was director of USC's master of real estate development degree program and was the founding director of the Casden Real Estate Economics Forecast.
Bostic also served USC's Lusk Center for Real Estate as the interim associate director from 2007 to 2009 and as the interim director from 2015 to 2016. From 2016 to 2017, he was the chair of the center's Governance, Management, and Policy Process Department.
From 2009 to 2012, Bostic was the assistant secretary for policy development and research at the U.S. Department of Housing and Urban Development (HUD). In that role, he was a principal adviser to the secretary on policy and research, helping the secretary and other principal staff make informed decisions on HUD policies and programs, as well as on budget and legislative proposals.
Bostic worked at the Federal Reserve Board of Governors from 1995 to 2001, first as an economist and then as a senior economist in the monetary and financial studies section, where his work on the Community Reinvestment Act earned him a special achievement award.
He serves on many boards and advisory committees, including the Advisory Committee on Economic Inclusion at the Federal Deposit Insurance Corporation, Georgia's Partnership for Inclusive Innovation, and the Lincoln Institute of Land Policy. He is also a member of Harvard University's Board of Overseers. He is serving as the 2021–22 chair of the board of directors of the United Way of Greater Atlanta and is the 2022 chair for the Metro Atlanta Chamber of Commerce.
Bostic graduated from Harvard University in 1987 with a combined major in economics and psychology. He earned his doctorate in economics from Stanford University in 1995.
The Federal Reserve Bank of Atlanta serves the Sixth Federal Reserve District, which covers Alabama, Florida, and Georgia, and parts of Louisiana, Mississippi, and Tennessee. The Bank has branches in Birmingham, Jacksonville, Miami, Nashville, and New Orleans.Updated March, 2022
Bostic, Raphael W. April 18, 2020. "Opinion: Fed's Working to Aid Economy, Post-Pandemic Recovery." Atlanta Journal-Constitution.
Bostic, R. and Johnson, M. January 15, 2020. "BankThink: How to keep community banks thriving." American Banker.
Boarnet, M. G.; Bostic, R. W.; Rodnyansky, S.; Burinskiy, E.; Eisenlohr, A.; Jamme, H.; and Santiago-Bartolomei, R. 2020. "Do High Income Households Reduce Driving More When Living near Rail Transit?" Transportation Research Part D: Transport and Environment 80.
Bostic, R. W.; Jakabovics, A.; Voith, R.; and Zielenbach, S. 2019. "Mixed-Income LIHTC Developments in Chicago: A First Look at Their Income Characteristics and Spillover Impacts." In What Works to Promote Inclusive, Equitable Mixed-Income Communities, edited by Mark L. Joseph and Amy T. Khare, cluster #1, section A, no. 6.
Boarnet, M. G.; Bostic, R. W.; Burinskiy, E.; Rodnyansky, S.; and Prohofsky, A. 2018. "Gentrification near Rail Transit Areas: A Micro-Data Analysis of Moves into Los Angeles Metro Rail Station Areas." Research Reports, University of California National Center for Sustainable Transportation.
Bostic, R. W. and Molaison, D. Forthcoming. "Hurricane Katrina: Devastation, Possibilities and Prospects." In Economic and Risk Assessment of Hurricane Katrina, University of Southern California Center for Risk and Economic Analysis of Terrorism Events.
Bostic, R.; Kim, A.; and Valenzuela, A. 2016. "An Introduction to the Special Issue: Contesting the Streets 2: Vending and Public Space in Global Cities." Cityscape 18(1): 3–10.
Bostic, R. W. and Ellen, I. G. 2014. "Introduction: Special Issue on Housing Policy in the United States." Journal of Housing Economics 24: 1–3.
Bostic, R. 2014. "CDBG at 40: Opportunities and Obstacles." Housing Policy Debate 24(1): 297–302. doi:10.1080/10511482.2013.866973.
Bostic, R. W. 2014. "Resilient Economic Development: Challenges and Opportunities." In University of Illinois Chicago Urban Forum, edited by M. Pagano. University of Illinois Press.
Bostic, R. W. and McFarlane, A. 2013. "The Proposed Affirmatively Furthering Fair Housing Regulatory Impact Analysis." Cityscape: A Journal of Policy Development and Research 15(3): 257.
Bostic, R. W.; Thornton, R. L.; Rudd, E. C.; and Sternthal, M. J. 2012. "Health in All Policies: The Role of the U.S. Department of Housing and Urban Development and Present and Future Challenges." Health Affairs 31(9): online.
Graddy, E., with Bostic, R. W. 2010. "The Role of Private Agents in Affordable Housing Policy." Journal of Public Administration Research and Theory 20, special issue: 81–99.
Bostic, R.; Gabriel, S.; and Painter, G. 2009. "Housing Wealth, Financial Wealth, and Consumption: New Evidence from Micro Data." Regional Science and Urban Economics 39(1): 79–89.
Bostic, R. W., with Engel, K.; McCoy, P.; A. Pennington-Cross; and Wachter, S. 2008. "State and Local Anti-Predatory Lending Laws: The Effect of Legal Enforcement Mechanisms." Journal of Economics and Business 60(1–2): 47–66.
An, X. and Bostic, R. W. 2008. "GSE Activity, FHA Feedback, and Implications for the Efficacy of the Affordable Housing Goals." Journal of Real Estate Finance and Economics 36(2): 207–31.
An, X.; Bostic, R. W.; Deng, Y.; and Gabriel, S. 2007. "GSE Loan Purchases, the FHA, and Housing Outcomes in Targeted, Low-Income Neighborhoods." In Brookings-Wharton Papers on Urban Affairs, edited by G. Burtless and J.R. Pack. Brookings Institute Press.
Sloane, D. C., with Bostic, R. W. and Lewis, L. B. 2007. "The Neighborhood Dynamics of Hospitals as Land Owners." Lincoln Land Institute publication.
Bostic, R. W., with Longhofer, S. D. and Redfearn, C. 2007. "Land Leverage: Decomposing Home Price Dynamics." Real Estate Economics 35 (2): 183–208.
Bostic, R. W. and Prohofsky, A. 2006. "Enterprise Zones and Individual Welfare: A Case Study of California." Journal of Regional Science 46 (2): 175–203.
Bostic, R. W. and Gabriel, S. A. 2006. "Do the GSEs Matter to Low-Income Housing Markets? An Assessment of the Effects of GSE Loan Purchase Activity on California Housing Outcomes." Journal of Urban Economics 59: 458–75.
Black, H.; Bostic, R. W.; Robinson, B.; and Schweitzer, R. 2005. "Do CRA-Related Events Affect Shareholder Wealth? The Case of Bank Mergers." The Financial Review 40(4): 575–86.
Bostic, R. W. with Robinson, B. 2004. "Community Banking and Mortgage Credit Availability: The Impact of CRA Agreements." Journal of Banking and Finance 28: 3069–95.
Bostic, R. W., with Calem. P. S. and Wachter, S. M. 2004. "Hitting the Wall: Credit as an Impediment to Homeownership." In Building Assets, Building Credit: Creating Wealth in Low-Income Communities, edited by N. Retsinas and E. Belsky. Joint Center for Housing Studies and Brookings Institution Press.
Bostic, R. W., with Redfearn, C. 2004. "Book Review [The Color of Credit: Mortgage Discrimination, Research Methodology and Fair Lending Enforcement, by Stephen L. Ross and John Yinger]." Journal of Regional Science 44(1):162–65.
Bostic, R. W., with Aaronson, D.; Huck, P.; and Townsend, R. 2004. "Supplier Relationships and Small Business Use of Trade Credit." Journal of Urban Economics 55(1): 46–67.
Bostic, R. W., with Barakova, I.; Calem, P.; and Wachter, S. 2003. "Does Credit Quality Matter for Homeownership?" Journal of Housing Economics 12(4): 318–36.
Bostic, R. W. 2003. "A Test of Cultural Affinity in Home Mortgage Lending." Journal of Financial Services Research 23(2): 89–112.
Bostic, R., with Robinson, B. 2003. "Do CRA Agreements Increase Lending?" Real Estate Economics 31(1): 23–51.
Bostic, R. W., with Calem, P. S. 2003. "Privacy Restrictions and the Use of Data at Credit Repositories." In Credit Reporting Systems and the International Economy, edited by Margaret J. Miller. Boston: MIT Press.
Bostic, R. W., with Martin, R. 2003. "Black Homeowners as Gentrifying Force? Neighborhood Dynamics in the Context of Minority Homeownership." Urban Studies 40(12).
Bostic, R. W. 2002. "Equal Access to Credit." In 25 Years of Credit Research, edited by Mike Staten. Washington, DC: Georgetown University Press.
Bostic, R., with Canner, G. B. 2000. "Consolidation in Banking: How Recent Changes Have Affected the Provision of Banking Services." The Neighborworks Journal.
Bostic, R., with Avery, R. B. and Canner, G. B. 2000. "Highlights of a Survey of the Performance and Profitability of CRA-Related Lending." Housing America Update.
Bostic, R., with Avery, R. B. and Canner, G. B. 2000. "CRA Special Lending Programs." Federal Reserve Bulletin 86: 711–31.
Bostic, R., with Avery, R. B.; Calem, P. S.; and Canner, G. B. 2000. "Credit Scoring: Statistical Issues and Evidence from Credit Bureau Files." Real Estate Economics 28: 523–47.
Bostic, R., with Canner, G. B. 1998. "New Information on Small Business and Small Farm Lending: The 1996 CRA Data." Federal Reserve Bulletin 84(1): 1–21.Bostic, R., with Avery, R. B. and Samolyk, K. A. 1998. "The Role of Personal Wealth in Small Business Finance." Journal of Banking and Finance 22: 1019–61
Other Fed Work
Bostic, R.; Bower, S.; Shy, O.; Wall, L.; and Washington, J. September 2020. "Digital Payments and the Path to Financial Inclusion." Promoting Safer Payments Innovation Series no. 20-1.
Raphael Bostic. "Quantitative Frightening?," macroblog. January 16, 2019.
Raphael Bostic. "What Does the Current Slope of the Yield Curve Tell Us?," macroblog. August 23, 2018.
Raphael Bostic. "Thoughts on a Long-Run Monetary Policy Framework" macroblog series:
"Framing the Question." March 26, 2018.
"Part 2: The Principle of Bounded Nominal Uncertainty." March 27, 2018.
"Part 3: An Example of Flexible Price-Level Targeting." March 28, 2018.
"Part 4: Flexible Price-Level Targeting in the Big Picture." April 2, 2018.
Raphael Bostic. "A Big-Picture Look at the Economy. " ECONversations. February 21, 2018.
Economy Matters Podcast Episodes
Raphael Bostic (interviewer) and Anthony Orlando. "'These Local Problems Do Have Some National Solutions': A Conversation about Inequality." February 27, 2020.
Raphael Bostic (interviewer) and James Fallows. "Wings over America: A Conversation with Author James Fallows." . January 2, 2020.
Raphael Bostic (interviewer) and Alessandro Acquisti. "Speaking Publicly on Privacy: A Conversation about Digital Privacy." April 2, 2019.
Raphael Bostic (interviewer) and Jerome Adams. "Health Is Wealth": A Conversation with the U.S. Surgeon General." January 3, 2019.
Raphael Bostic (interviewer) and Raj Chetty. "'A Kid Should Have a Fair Shot': A Discussion of Economic Mobility." October 22, 2018.
Raphael Bostic (interviewer) and David Lusk. "'It's a Really Dramatic Change': A Discussion of the Economics of Food." October 12, 2018.
Raphael Bostic. "'It's a Special Job': A Conversation with Atlanta Fed President Raphael Bostic." April 27, 2018.
Message from the President
Raphael Bostic. "Observe and Adapt: Appropriate Monetary Policy in the Face of Inflation." February 1, 2022.
Raphael Bostic. "Defining the Pursuit of Maximum Employment." September 27, 2021.
Raphael Bostic. "A Moral and Economic Imperative to End Racism." June 12, 2020.
Raphael Bostic. "A Message from Federal Reserve Bank of Atlanta President Raphael Bostic." March 17, 2020.