Fed Logan's giving a speech on inflation today. Below is the notes for the speech. The inflation number likely doesn't include today's CPI.
https://www.dallasfed.org/news/speeches/logan/2023/lkl230214
This is a very good breakdown of how the Fed views inflation, and how they factor it into their rate hike decision going forward. I'd highly encourage people to read this if you need a primer on the current outlook for inflation. I've included some notable quotes below, and I might update the post later with more quotes.
” Now, there has been some progress on inflation in recent months. But the question for monetary policy is not whether there has been some progress, but rather whether the progress will continue. Will inflation return all the way to our 2 percent target, and will it sustainably remain there over time?”
” As it happens, for the last three months of 2022, headline PCE inflation slowed to an annualized rate of 2.1 percent. However, a good bit of that drop in inflation was due to falling prices of oil and other commodities. Energy prices, as measured by the PCE price index for energy goods and services, fell at a 16 percent annual rate over the last three months of 2022. But while it’s a relief to see lower prices at the gas pump, energy prices can’t keep falling at this rate forever. “
” The larger concern is with services other than housing. Core services inflation excluding housing has been running in a range of 4 to 5 percent for close to two years, with little sign of improvement. You could say this is the core of the inflation problem.
If core services inflation excluding housing remained in its current range, while other categories returned to their prepandemic pace, total inflation going forward would settle much closer to 3 percent than to our 2 percent goal. And depending on how the U.S. and world economies evolve, inflation could be even higher. For example, the Dallas Fed’s business contacts tell us that China’s rapid transition out of zero-COVID policies could drive up commodity prices this year by more than what most people currently expect.”
” Another sign of strength in the labor market is that as of December, there were 1.9 job openings for every unemployed person in the United States. That is down only slightly from the all-time high of two openings per unemployed person last March. And it is well above the ratio of 1.2 openings per unemployed person in 2019—which was thought at the time to be a very strong labor market.”
” But for 5 percent wage growth to be consistent with 2 percent inflation on a sustained basis, productivity would have to rise at a 3 percent annual rate. Yet output per hour worked grew at an annual rate of only 1 and a quarter percent from 2012 through 2019, and there is little indication it has accelerated meaningfully since then. “
” I will also remain attentive to financial conditions. Ultimately, conditions need to be sufficiently restrictive to restore price stability. We must remain prepared to continue rate increases for a longer period than previously anticipated, if such a path is necessary to respond to changes in the economic outlook or to offset any undesired easing in conditions. And even after we have enough evidence that we don’t need to raise rates at some future meeting, we’ll need to remain flexible and tighten further if changes in the economic outlook or financial conditions call for it. “
Leave a Reply