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Monetary Policy Through the Lens of Market-Based Inflation

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Abstract

Some goods and services prices are not directly observed and must be indirectly derived for measuring inflation. This nonmarket-based inflation category has been an important factor keeping headline inflation elevated over the past two years. Because indirectly deriving prices introduces measurement uncertainty, one monetary policy approach would be to focus solely on directly observable prices. Applying this through a well-known monetary policy rule suggests a notably lower federal funds rate. However, other rules that account for the implicit uncertainty that policymakers face would leave the federal funds rate essentially unchanged.

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  • Sylvain Leduc & Luiz E. Oliveira, 2026. "Monetary Policy Through the Lens of Market-Based Inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2026(09), pages 1-6, April.
    • Handle: RePEc:fip:fedfel:103057
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    References listed on IDEAS

    as
    1. Régis Barnichon & Geert Mesters, 2023. "A Sufficient Statistics Approach for Macro Policy," American Economic Review, American Economic Association, vol. 113(11), pages 2809-2845, November.
    2. Sylvain Leduc & Luiz E. Oliveira & Caroline M. Paulson, 2025. "Do Low Survey Response Rates Threaten Data Dependence?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2025(07), pages 1-5, March.
    3. Randal J. Verbrugge & Saeed Zaman, 2025. "Understanding Inflation via Developments in Market and Nonmarket Inflation Rates," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2025(09), pages 1-8, September.
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