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Q: If there's a near-term rise in inflation, how will you determine whether it's temporary or more enduring, and how much inflation is the Fed willing to tolerate before it restrains price pressures?
- A: We measure inflation on a trailing 12-month basis and as we lap the low infl readings of March and April 2020, we' see measured inflation move up a few tenths - that's base effects "and that's a transient thing we think will pass".
- Also the possibility that as the economy reopens there is a burst of spending, and that could create some upward pressure on inflation. Again, we would see that as transient and not very large or lasting. So the way we would react is we're going to be patient.
- Low long-term inflation in recent decades: "It's very unlikely anything we see now would result in troubling inflation... Of course if we did get sustained inflation level that was uncomfortable, we have tools for that. It's far harder to deal with too low inflation.
- We know what to do with higher inflation which is, should the need arise, we would have the tools and don't expect to see that at all."
- In terms of how much, we have not adopted a formula. we're going to preserve an element of judgment and, again, we'll seek inflation moderately above two percent for sometime and show what that means when we get inflation above two percent. The way to achieve credibility is to actually do it anticipate so that's what we're planning on doing.