FRB: Speech, Kohn–Economic Outlook–October 4, 2006

….I think that the risks to my outlook for economic activity may be skewed a bit to the downside, while those to my forecast of gradually declining inflation are tilted to the upside. In my view, in the current circumstances, the upside risks to inflation are of greater concern. Although to date inflation expectations have remained contained, failure to check and then reverse the greater inflation pressures of earlier this year would risk embedding those higher inflation rates in the decisions of households and businesses, an outcome that would be costly to reverse and would impinge on the economy’s long-term performance ….