The missing “mechanism”

Lael Brainard gave a speech Understanding the Disconnect between Employment and Inflation with a Low Neutral Rate, in which she tries to build the case for less tightening by the Fed. Some of her arguments: …Despite a similar degree of resource utilization, core inflation averaged 2.2 percent from 2004 to 2007, notably higher than the comparable three-year average inflation rate today of 1.5 percent. Why is inflation so much lower now than it was previously? The fact that the period from 2004 to 2007 had inflation around target with similar unemployment rates casts some doubt on the likelihood that resource…

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