At this time, the odds are that inflation pressures are contained and will remain so.

The direct contribution of rising commodity, energy, and other import prices to consumer inflation is likely to lessen considerably, however. Commodity price increases have slowed; the dollar has flattened out in recent months, which should damp import price increases; and, if they conform to the expectations implicit in futures markets, oil prices should level off and then drop back a bit.

Inflation has picked up over the past year or so, but from very low levels and with much of the overall acceleration attributable to an increase in energy prices that should not be repeated any time soon.

The recent decline in the value of the dollar may lessen the competitive pressure on domestic producers that has until now limited their pricing power.

Higher prices for oil and other commodities may lead producers to try to pass on some of their higher input costs, potentially exacerbating latent price pressures.

Recently I have been hearing from my contacts around the District that price pressures are building and there has been some evidence of firms passing on higher costs into final product prices.

As an economist, I recognize that price pressures are an inevitable part of any business expansion. I think we all recognize that as the economy continues on its path of expansion, price dynamics are prone to shift.

Increasingly, then, U.S. firms compete with firms around the world in the markets for raw materials and final goods and services, while U.S. workers compete with workers around the world for positions in a widening array of occupations and industries. From the macroeconomic perspective, this globalization of the marketplace and the increased degree of competition it brings are powerful forces that can alter the wage and price dynamics of the U.S. economy and, indeed, have done so over this cycle, persistently dampening upward price pressures.

I think we have to recognize we're in the fourth year of a recovery and we have to remain vigilant on the inflation front.

I think inflation is worth watching. I wouldn't yet characterize (risks) as having shifted to the upside.

I think the biggest unknown is whether the inflationary pressures that are pretty obvious are a temporary thing--because of energy pass-through--or whether we have a larger inflation problem.  I am more in the former group than the latter...Should we see evidence that we are getting into a more fundamental inflation problem, which as I say is not my best guess, you are going to see the Federal Reserve react more vigorously.

The upward thrust to the economy appears quite substantial and the risk of higher inflation over the next six months or so seems clearly greater than the risk that inflation will fall below a desirable range. The aim of monetary policy should be to counter inflation pressures with a less accommodative policy stance, so that higher actual inflation does not extend beyond unavoidable transitory effects.

I see real GDP growth of about 4 percent or so this year [2005]. I also expect to see a continuation of the recent acceleration in job creation as the economy continues to expand. And inflation, while elevated over its pace from a year ago, seems likely to be well behaved on the whole.

The prices of energy, employee benefits, and raw materials have posed challenges to businesses for several years now. To date, these cost increases have been largely buffered by rising productivity and sizable profit margins, so their pass-through to final goods prices has been limited. But more recently, I have heard stories from my business contacts telling me that increased prices can now be passed along. These stories may well only portend increasing prices for intermediate goods, with the final goods prices continuing to be well contained by productivity and profitability. But to my ear, these stories modestly raise the risk of rising inflation.

I am comfortable with my baseline assessment that some resource slack remains and that the pace of inflation will taper off. But...the range of uncertainty around this assessment is wide enough that we should recognize the possibility that the economy has somewhat less running room, which could imply a bit steeper trajectory for inflation.