MNI BRIEF: Fed's George Warns of Structural Shift in Economy

Kansas City Fed President Esther George said Monday that with a tremendous amount of fiscal stimulus flowing through the U.S. economy, the economic landscape could unfold quite differently going forward than the one that shaped the thinking around the central bank's revised monetary policy framework unveiled last August.

"The structure of the economy changes over time, and it will be important to adapt to new circumstances rather than adhere to a rigid formulation of policy reactions," she said in a speech at an agricultural symposium, not dismissing the risk of higher inflation and adding that policymakers should remain "nimble and attentive to these dynamics." George's comments echo those of Boston Fed President Eric Rosengren who has also suggested that inflationary dynamics could change.

The economy should see "strong" employment growth "in the coming months," particularly in contact-intensive industries such as hospitality and live entertainment, said George, adding that current labor constraints from restrictions on activity, lack of childcare, enhanced unemployment benefits, or fear of contagion should ease but the impacts on labor force participation bears watching. Fed advisors and ex-officials have told MNI retirements could impede the central bank's ability to get back to pre-pandemic labor force participation levels.