Quarles: Inflation Fight May Lead to 'Brief' Recession

The transcript discusses the Federal Reserve's response to inflation in early 2021, initially seen as temporary due to supply chain disruptions. By late 2021, it became clear that demand-driven factors were at play. The Fed's new framework, focusing on inflation targeting and labor market metrics, is analyzed. The challenges of reducing inflation without causing a recession are highlighted. Current Fed strategies, including interest rate adjustments, are debated. The impact of leadership changes on regulatory policy, particularly regarding Basel 3, is also discussed.

What was the primary factor driving inflation in the first half of 2021?

• Government spending

• Increased demand for housing

• Supply chain disruptions

• Rising oil prices

By September 2021, what was identified as the main cause of inflation?

• Rising energy costs

• Increased government debt

• Overstimulated demand

• Supply chain disruptions

What is a potential consequence of the Fed's efforts to reduce inflation?

• Deflation

• A brief recession

• A prolonged recession

• Stagflation

What principle did the Fed follow in its new framework for inflation targeting?

• The Keynesian principle

• The Israel Putnam principle

• The Phillips curve principle

• The Taylor rule

What was a key consideration in the Fed's decision-making process regarding rate hikes?

• Stock market performance

• Currency exchange rates

• Labor market conditions

• Global trade balances

What is a current challenge in implementing the Basel 3 regulatory framework?

• Lack of international agreement

• Political opposition

• Absence of a vice chair for supervision

• Insufficient data on inflation

What is one proposed solution to address the supplementary leverage ratio issue?

• Increase the numerator

• Exclude certain items from the denominator

• Raise interest rates

• Implement quantitative easing