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Silas Keehn: Monetary Policy Remarks Seftember 1987 Economic Forums 9/. 5/87 -- Gaylord, Ml 91/16/87 -- Traverse City, Ml 9/4/87 Slide #1 -- Title Slide: Challenges for Monetary Policy I. The outlook that Karl has just given represents what I would consider to be fairly good economic growth and inflation outcomes, especially since we are now well into the 5th year of the current expansion. A. But achievement of our economic growth outlook is highly dependent on a turnaround in our international trade B. Moreover, the adjustment process by which that turnaround in trade comes about necessarily means higher import prices and upward pressure on our domestic inflation rate. C. This tradeoff between economic growth and inflation, of course, represents the perennial and pivotal policy issue faced by economic policymakers such as myself. D. But our decisionmaking process has become more complicated because the economy we live in today is very different from that of just a few years ago. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 2 Slide #2 -- Text Slide: Globilization of U. S. Economy II. Perhaps the most significant change we've seen is what can be called the "Globilization" or "Internationalization" of the U.S. economy. A. Over the past few years we have become increasingly cognizant of the interdependencies between the U.S. economy and the economies of the rest of the world. 1. This has become apparent in the growing importance of trade flows for the health of our own economy as well as the health of other economies. 2. It has become apparent as well in our growing reliance on funds from abroad. 3. And with this interdependence of trade and financial flows, the need for policy coordination between the U.S. and other countries has never been greater. B. In a word, U.S. policymakers simply cannot consider only domestic issues, but https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 3 1. Must be aware of the implications of our actions for the rest of the world 2. Must be aware of the implications for us of actions taken abroad Slide #3 -- Text Slide: Leveraging of America 111. A second major change might be called the "Leveraging of America." Over the past few years there has been an enormous buildup of debt across all sectors of our economy. A. Debt of the Federal government as well as state and local governments has grown at an extremely rapid pace. B. Debt-to-income ratios for U.S. households are near record high levels. C. Corporate debt-to-net worth ratios also are historically high. D. And, as a nation, we are now the largest debtor country in the world. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 4 Slide #4 -- Text Slide: Related Economic lmbalances / M ~ ~ ( . ] ' IV. Related to these two major changes in the economy -- the globilization and the leveraging of America A. Are several important imbalances in our economy 1. Industrial Structure Imbalance: a. Identified with a relative decline in heavy manufacturing, and the shift from manufacturing to services jobs (1) An imbalance attributed, in part, to the globilization of our economy b. Accompanied by regional imbalances ( 1) Agriculture and oil (2) And resulting financial stress 2. International Trade Imbalance: https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis a. Large international trade deficits which are symptomatic of the globilization process b. Accompanied by significant international debt problems 9/4LB7 Policy Remarks Page 5 (1) Another financial stress point 3. Federal Government Budget Imbalance: a. Rapid federal government debt growth reflecting the many years of large federal budget deficits b. Another example of the leveraging of America 4. Savings and Investment Imbalance: a. A reflection of the leveraging of America, or the rapid debt growth in our economy b. Domestic savings inadequate to finance both our domestic investment needs and the budget deficit (1) Have achieved by importing capital B. Obvious that there are many issues related to these major imbalances 1. Can't discuss them all in detail 2. But to understand position of monetary policy https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis a. Important to be aware of broad dimensions of these imbalances 9/9LB7 Policy Remarks Page 6 Slide #5 -- Transition Slide (Text): Structural Imbalance V. To begin, let us consider the structural imbalance shift from manufacturing to services jobs A. In Midwest, well aware of significant restructuring 1. How affected manufacturing jobs Slide #6 -- Chart: Employment Shares (1977-1987), Mfg. vs. Services VI. Over the past decade, we've seen reversal in position of manufacturing jobs vs. jobs in services ,,2..'-f 9u A. Manufacturing fell from ~ of nonfarm payroll employment in 1977 to t°l 1o 1:-8d% this past August ~~ Jq'!o 1-0 ;i '-I~ B. Share of jobs in services rose C. This shift in employment shares has raised concerns https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1. About whether our economy can prosper if "we are all taking in each other's laundry" 1. More particularly, about our manufacturing position a. Frequently viewed as the base for our economic growth 9/4L87 Policy Remarks Page 7 Slide #7 -- Chart: Employment Shares (1947-1987), Mfg. vs. Services VI I. There are several misconceptions concerning the shift from manufacturing to services jobs that need to be recognized. A. First, as we can see on this chart, the shift is not a recent phenomenon B. Rather, manufacturing' s share of total nonfarm payroll employment has been declining throughout the post World War II period https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 8 Slide #8 -- Chart: Manufacturing Shares -- Employment vs. Output VI 11. A second misconception relates to the importance of manufacturing in our nation's output A. Fact of the matter, despite the declining trend in manufacturing's share of employment B. Manufacturing output today is roughly the same percent of our total output as it was 40 years ago and near the average for the past four decades. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4LB7 Policy Remarks Page 9 Slide #9 -- Chart: Productivity, Manufacturing vs. Nonfarm Business IX. The reason we've been able to maintain a fairly stable manufacturing to total output ratio A. Manufacturing productivity (output per hour) has been steadily rising over the postwar period B. Indeed, as is clear on this chart, manufacturing productivity has outstripped that of the total nonfarm business sector over the past decade C. Result -- we can produce the same quantity of manufactured goods with fewer people D. But, this poses a very difficult dilemma for https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis policymakers 1. On the one hand, how do we deal with the very serious problems faced by the workers displaced in this process 2. On the other hand, we know that improved efficiency or productivity is a necessary ingredient for our success in competing in today's worldwide markets 9/4L87 Policy Remarks Page 10 Slide #10 -- Transition Slide: International Trade Imbalance X. This brings us to the second major imbalance I want to discuss, namely our large trade deficit Slide #11 -- Chart: U. S. Current Account XI. All of you are well aware of the fact that we've had enormous international trade deficits over the past few years A. This chart -- showing our current account balance -demonstrates the magnitude of that imbalance B. Until the past few years, we traditionally had current account surpluses 1. That is, our merchandise and service exports plus our investment income receipts exceeded our imports of goods and services plus our investment payments to foreigners C. Over past 25 years https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 11 1. Relatively small current account deficits occurred first in 1971 ($1.4 billion) and 1972 ($5.8 billion) 2. Somewhat larger deficits in 1977-78 (both $15 billion) 3. Very sizable deficits since 1982, deficit last year at record $141.4 billion 4. Fallen like a stone ,, £ --~ >-- ~. ~ ~-~~~ ~ ~~~~s. - Slide #12 -- Chart: Current Account vs. Foreign Capital Inflow XII. There is a counterpart to our trade deficit that has to be recognized A. Namely, that what happens to our current account balance https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis is equal to what happens to our foreign capital flows 1. If we run a current account surplus, then we are net exporters of capital 2. On the other hand, when we run current account deficits, we become net importers of capital 9/4L87 Policy Remarks Page 12 Slide #13 -- Chart: Net International Investment Position of U.S. XIII. And, the magnitude of our recent current account deficits and corresponding foreign capital inflows means that in five short years we have gone from the largest creditor nation to the largest debtor nation in the world A. Now this position in not inherently wrong, if funds are used for productive purposes which generate the repayment capacity to service the debt B. It is wrong to use the funds for consumption purposes -- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis and unfortunately that basically is what has happened 9/4LB7 Policy Remarks Page 13 Slide #14 -- Chart: U.S. Net Exports, Real vs. Nominal XIV. Because of what's happened to the dollar over the past 2-1/2 years we are poised for a turnaround in our trade position A. Although the official statistics are still clouded B. Signs of improvement are emerging 1. While our net exports measured in current dollars show little sign of improvement 2. Measured in 1982 dollars, we are seeing some turnaround in the quantity of goods and services ~~ traded 3. Moreover, we have more reports of domestic rather than foreign sourcing 4. And, the outlook Karl presented earlier clearly anticipates a narrowing in our trade deficit C. But, it is important to remember that as the dollar falls and the current account deficit narrows 1. Our domestic inflation will rise https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 14 2. And, savings from abroad or foreign capital inflows will be reduced D. And that means that savings for domestic investment and to finance federal budget deficits will more and more have to come from domestic sources Slide #15 -- Transition Slide: Federal Budget Imbalance XV. But, if we are going to be able to do so without undue pressure on interest rates A. Must correct the federal budget imbalance between spending and revenues B. Efforts to reduce the federal budget deficit must https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis continue 9/4L87 Policy Remarks Page 15 Slide #16 -- Chart: Federal Deficit as a % of GNP XVI. Federal budget deficits of current magnitudes at this stage of the economic expansion are unprecedented A. Not at all unusual at the the time of recession or other adverse events 1. Indeed, many programs are specifically designed to ease the pain of recessions B. But we are now in the 5th year of the current economic expansion and until just recently we were running deficits around 4-1/2 to 5% of GNP 1. Unfortunately, large part of recent drop is https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis temporary, due to large tax payments from last year's tax law changes 2. Deficit as a percent of GNP more likely to rise than fall in coming years if efforts to reduce the deficit stall/fail 3. We've never done this before 9/4L87 Policy Remarks Page 16 Slide #17 -- Chart: Total Gross Public Debt XVI I. Federal deficits result in Treasury debt A. Rising at an alarming rate B. Debt level in early 1975, $500 billion C. Surpassed $2 trillion level on April 1, 1986 D. Was $2.35 trillion at the end of August -- rising inexorably E. And, even with the deficit this fiscal year being "only" https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis $155-$160 billion, as currently expected 1. Some $620-$640 million in new money, on average, needs to be raised each business day 2. Some $3 billion per week 9/4L87 Policy Remarks Page 17 Slide #18 -- Chart: Interest on Debt XVII I. Interest on the debt has to be paid A. Growingly worried about compound interest syndrome 1. Is this an issue that has gotten beyond our control? 2. Interest on the debt is assuming a much larger position in the annual budget -- 10% in fiscal 1976, over 19% in fiscal 1986 3. Even on this basis alone, the need for action on the deficit is very compelling B. But, implications of continued high federal budget https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis deficits go further 1. At stake -- whole issue of allocation of savings and investment dollars between government and private sector 2. Of particular concern is that interest rates are higher as a result of budget deficit a. Some debate on this issue 9/4L87 Policy Remarks Page 18 Slide #19 -- Chart: Uses of Total Available Savings XIX. But when we look at how available savings have been used A. Large proportion soaked up by Federal deficits 1. Past 3-1/2 years, total available savings averaged 10% of GNP -- historically high 2. Federal deficit as % of GNP: 5.2% in 1983 4.5% in 1984 4.9% in 1985 4.8% in 1986 3.5% in first half of 1987 Record high percent for this stage of expansion B. It is only logical then that there has been pressure on interest rates from the deficit 1. And private domestic investment squeezed out by https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis those higher interest rates 9/4L87 Policy Remarks Page 19 Slide #20 -- Chart: Sources of Total Available Savings XX. Would have been worse if we didn't have foreign capital inflow A. Foreign capital inflow augmented our domestic savings 1. On an annual average basis, domestic savings (= personal savings + undistributed corporate profits + state and local government surpluses) since 1970 ranged from a low of 6.5% of GNP last year (1986) to 9.9% in 1973 a. Was only 5.2% in this year's first half 2. Domestic savings, which accounted for virtually all of total available savings in 1982, provided only two-thirds of total last year 3. Savings from abroad provided the remaining one-third B. But, as I indicated earlier, the expected turnaround in our international trade deficit necessarily means that the amount of foreign capital coming into our country https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis will be reduced 9/4L87 Policy Remarks Page 20 C. Fortunately, we are finally beginning to see signs that the federal deficit is getting smaller 1. I say this is fortunate even though this means less fiscal stimulus for economic growth 2. It is fortunate because recent developments do not point to an increase in our own domestic savings relative to our investment needs Slide #21 -- Transition Slide: Savings and Investment Imbalance XXI. Which brings us to the fourth imbalance that I want to discuss, namely the troublesome disparity evolving between our domestic sources of funds and domestic investment needs https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 21 Slide #22 -- Chart: Domestic Savings vs. Investment (as a % of GNP} XXI I. As we can see on this chart, the margin or difference between domestic savings and domestic investment has been narrowing over the past few years A. As measured here, domestic savings includes personal savings, undistributed corporate profits, and state and local government budget surpluses 1. As a percent of GNP, our domestic savings still exceeds our domestic investment 2. But, that margin has been narrowing a. Was less than one-tenth of one percentage point in the first half of this year 3. And, don't forget, we still have a federal budget deficit exceeding 3-1/2% of GNP to finance B. As we see in this chart, the primary cause of the https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis savings/investment imbalance is the fall in savings side 1. And, that largely reflects what's happened to the personal savings rate 9/4[87 Policy Remarks Page 22 Slide #23 -- Chart: Personal savings as XXIII. % of disp. personal income This chart shows what's been happening to our personal savings rate A. Personal savings as a percent of disposable personal income has been well below 1960-1981 average of 7-1/4% during most of the current expansion 1. The 4.3% savings rate reported for all of 1986 was the lowest since 1949 a. And, we've had about a 3-1/2% savings rate so far in 1987 B. What this means is that the consumer is not providing https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis sufficient savings needed for both domestic investment and to finance the budget deficit 9/4L87 Policy Remarks Page 23 Slide #24 -- Chart: Cons. Installment Debt as % of Disp.Pers.lncome XXIV. Rather, the consumer has been on a spending spree, and to a large extent supported that spending spree by taking on huge amounts of debt -- part of the leveraging of America problem A. Consumer installment debt has risen to record levels relative to disposable personal income B. Although there are some mitigating circumstances which moderate the sheer magnitude of numbers 1. Increased use of credit cards for managing cash -included in figures though fully repaid each month 2. Demographics -- higher percentage of population in age groups that are typically borrowers 3. Longer-maturity loans imply lower monthly payments 4. More-than-offsetting increases in assets C. Nonetheless, personal debt loads have become very heavy 1. Raises the question as to the sustainability of https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis consumption and, therefore, the economic expansion ( 9/4L87 Policy Remarks Page 24 2. Will consumers be able to handle this debt if personal incomes begin to fall? D. And yet another disturbing aspect, while recent consumer https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis debt-to-income ratio has leveled off (fallen) somewhat 1. Partially due to tax law changes and resulting shift to using home equity loans not included in the consumer installment debt figures 2. Not sure the consumer fully aware of the risks should economic situation turn sour. 9/4L87 Policy Remarks Page 25 Slide #25 -- Chart: Funds Raised by Nonfinancial Corporate Business XXV. The consumer has not been alone in the increasing debt load picture A. Corporate debt in the U.S. also has increased sharply over the past few years 1. In 1984, consolidated corporate debt issued by nonfinancial corporations amounted to $193 billion -- a record 2. At $164 billion in 1985 and $178 billion in 1986, we saw the second and third largest amounts ever recorded. B. Much of that debt used to finance the extraordinary pace of mergers, leveraged buyouts, share repurchases and other restructuring plans of the past three years 1. In process, huge amounts of corporate equity retired 2. Such retirements far exceeded new issues offered https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 26 3. So that net equity issues -- the difference between new offerings and retirements -- were significantly negative in 1984, 1985, and 1986 4. Corporate America has been decapitalizing itself Slide #26 -- Chart: Corporate Debt to Net Worth Ratio XXVI. As a consequence, corporate debt relative to net worth has increased sharply in past three years A. From 60-64% range observed over 1970-1983 period to about 86% in 1986 (measured on historical cost basis) B. Debt service implications if this trend continues worrisome 1. Increased claim on future earnings means less internally generated funds available for investment 2. Debt service becomes more difficult if economy falters, if interest rates rise C. Destabilizing element -- Vulnerability https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 27 Slide #27 -- Text Slide: Policy Implications XXVI I. These imbalances clearly have important implications for U.S. economic policies A. Implications for the broad policy set 1. Fiscal policy -- taxing and spending 2. Regulatory policy -- market and industry structure and behaviorial restraints 3. And, for monetary policy B. Indeed for these major imbalances -- monetary policy cannot directly address 1. Clearly, Congressional actions determine budget and trade policies 2. And we know that savings and investment decisions are significantly affected by government spending and taxing policies C. But, these imbalances must nevertheless be taken into consideration in monetary policy https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 28 1. They are an important part of the environment for making monetary policy 2. And influence what monetary policy can do in affecting the economy D. In the current environment 1. The twin deficits -- budget and trade -- are of https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis particular importance 9/4L87 Policy Remarks Page 29 Slide #28 -- Chart: Federal Budget Deficit Outlook XXVIII. The importance of the imbalance in our federal budget is quite obvious A. U.S. fiscal policymakers should be seeking a better balance between federal government spending and revenues B. In other words, they should continue to move toward reducing the federal budget deficit C. Outlook for the current fiscal year is quite good 1. FY87 budget deficit is projected to be $157 billion (CBO estimate) to $159 billion (0MB forecast), down sharply from $221 billion in FY86 2. However, much of this year's improvement reflects higher tax revenues from capital gains taken in late 1986 -- a one-time change due to Tax Reform D. Without further fiscal policy changes, budget deficit is expected to rise over the next two fiscal years 1. FY88: $161 billion (0MB) vs. $183 billion (CBO) 2. FY89: $166 billion (0MB) vs. $192 billion (CBO) https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 30 E. And, if we get larger rather than smaller deficits 1. Additional upward pressure on interest rates since that deficit must be financed 2. Less savings available for our private investment 3. Continued heavy reliance on savings from abroad F. In other words, if the federal budget deficit is not https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis reduced, we will continue to have a tough time dealing with other imbalances in our economy 9/4L87 Policy Remarks Page 31 Slide #29 -- Chart: Domestic Spending vs. Output XXIX. To a large extent, the significance of the international imbalances for the U.S. economy can be summarized in this chart A. Which shows our domestic spending (Gross Domestic Purchases) as a percent of our domestic output (GNP) B. Over the past several years we've been spending far more than we've been producing 1. The difference between our spending and output reflects our net export position 2. That is, the excess of goods and services we've imported over those we've exported C. If we were to look at comparable data for our trading partners 1. We'd see just the opposite situation 2. Since, by definition, our trade deficit must be https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis reflected in trade surpluses of our trading partners taken collectively https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 9/4L87 Policy Remarks Page 32 3. This means that, in the aggregate, they've been producing more than they've been spending in order to meet demands for goods and services from the U.S. 9/4L87 Policy Remarks Page 33 Slide #30 -- Chart: Trade weighted dollar XXX. With the decline in the foreign exchange value of the dollar A. The production and spending relationships are being changed 1. We will need to produce more and spend less 2. Foreigners will have to spend more and produce less B. The lower dollar 1. Brings about a rise in our net exports and a fall in net exports of our trading partners 2. This translates into higher real GNP growth for us but lower real GNP growth for other nations C. But the lower dollar also affects inflation 1. As prices on goods we import rise, that means that our inflation is higher than otherwise 2. For other nations, as the price of goods we export https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis to them falls, that means their inflation is lower than it would have been 9/4L87 Policy Remarks Page 34 D. A "Catch-22" or a policy dilemma for us 1. While we would all like to have more economic growth 2. Is higher inflation the price we want to pay E. The policy dilemma for other nations 1. Lower inflation may be desirable 2. But is lower economic growth a price they can afford F. And in turn for us 1. If other nations have lower growth, can we expand https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis our exports to them 9/4LB7 Policy Remarks Page 35 Slide #31 -- Text Slide: Domestic Policy Goals XXXI. In the final analysis, the primary objective of monetary policy A. Is to achieve maximum growth with price stability -- to balance these goals 1. Don't want more growth at the cost of inflation a. It doesn't buy anything in the long run 2. But we certainly want as much growth as we can without price escalation B. The real question then is what growth is attainable https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1. Currently, the twin deficits -- the federal budget deficit and the trade deficit -- are among the major constraints to greater growth a. They may both be declining, or we hope they will, but their legacy is still with us b. We are paying the costs of our excesses 2. Also, achievable growth is influenced by the other imbalances 9/4L87 Policy Remarks Page 36 a. Industrial restructuring -- our competitive position has not fully recovered b. Savings and investment imbalance not fully corrected 3. Consequently, we may not be able to achieve much https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis more rapid growth now 9/4L87 Policy Remarks Page 37 Slide #32 -- Chart: Real GNP, Actual and Trend XXXII. In spite of imbalances in our economy, we are running close to our long-term growth path A. On this chart we show actual real GNP and its trend over the past four decades and trend over past 20 years 1. Over 40-year period, growth in real GNP averaged 3% a. But 3-1/2% trend growth from 1947-1966 b. And 2-1/2% trend growth since 1967 2. So, while somewhat below 40-year trend path a. We're very close to 67-87 trend path B. Attempts to achieve more rapid growth 1. Run some risks to long-term price stability 2. Especially since we're already under price pressures https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis from imports a. If these pass through to other products and to wage rates generally b. Could get a systematic increase in inflation c. To longer-term detriment of economic growth 9/4L87 Policy Remarks Page 38 Slide #33 -- Chart: Real GNP and Inflation XXXIII. Unfortunately, the correct policy path is not obvious A. If the correct answer were always obvious, you wouldn't need monetary policymakers such as myself B. From my perspective, it's essential that U.S. monetary policymakers remain aware that the balance between our economic growth and our inflation is very important 1. The history of real GNP growth vs. our inflation shown here indicates that a. When economic growth rises too high, inflation goes up b. To correct that imbalance in the past has meant recession c. That need not be the case now C. In the current situation we can continue to see good https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis economic growth with price stability, provided that 9/4L87 Policy Remarks Page 39 1. We remain aware of the implications for our economic growth and inflation of actions taken by other policymakers a. And work together to correct imbalances 2. We recognize that the rise in our inflation stemming from higher import prices can be only a temporary increase -- a necessary part of the adjustment process in correcting our international imbalance 3. Provided that we remain alert to, and respond appropriately to, the potential for these temporary price pressures being built permanently into our price structure a. From domestic producers raising prices unduly b. From wage increases that exceed productivity gains D. The challenges for monetary policy are great, but not insurmountable https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • • • • •