Inflation is like wine

John Williams, President and CEO, Federal Reserve Bank of San Francisco, in a speech titled Dancing Days Are Here Again:

Inflation is like wine—a little bit is actually good for you. And right now our glass isn’t full enough.

Quite unusual for a central banker to speak in such plain language. A nice way of providing a real world example to underscore policymakers' concern about driving prices higher, which is something that the general public wishes the least.

Williams continues in the plain talk, showing empathy for the man on the street:

I know that people don’t always feel the reality of inflation being too low. The average person in a supermarket checkout line probably doesn’t. People often ask if Fed officials eat or drive, because we favor inflation measures that strip out food and energy.

In showing his preference for raising rates sooner rather than later, he quotes a research paper by two young academics from the Czech National Bank, interestingly right besides Milton Friedman:

The next appropriate step is to raise rates. My preference is sooner rather than later for a few reasons. First, Milton Friedman famously taught us that monetary policy has long and variable lags. Research shows it takes at least a year or two for it to have its full effect. So the decisions we make today must take aim at where we’re going, not where we are. The economy is a moving target, and waiting until we see the whites of inflation’s eyes risks overshooting the mark.

Great to see the work by Czech monetary policy scientists providing support for monetary policy formulation in the United States.