00:00When I step back and think about where we are in the U.S. right now, when I look at inflation, I think that we are too high.
00:06We've been missing on our mandate for four and a half years.
00:09And when I look at the trend, the trend is in the wrong direction.
00:13Last year, last September, when the Fed embarked on reducing rates for the first time, we had inflation that was lower than where we are today.
00:21And the trend was headed down.
00:23Inflation was going to continue to move towards our 2 percent objective after a long period of being above it.
00:29Over the past year, inflation has largely moved sideways.
00:32Some components have actually moved up.
00:35Obviously, tariffs are a big part of the story.
00:37And, you know, there's a lot of different perspectives on what that might mean and how tariffs might play out.
00:43But part of the inflation story that seems to me to be a little more concerning is that the services part of inflation has been remaining elevated.
00:56So when you look at some of the submeasures, when you look at core services, ex-housing, that measure has been closer to three and a half percent and has actually ticked up in the past couple of months.
01:07And it's harder for me to unpack that and attribute that to some of the tariff impacts that we're seeing.
01:13So I think it's important to remember that we do have a 2 percent objective.
01:21It's critically important that we achieve that 2 percent objective.
01:26And in order to do so, we need to balance a number of factors.
01:29For the U.S., unlike other central banks around the world, we do have two objectives.
01:34So we have the inflation objective, which we talked about, and our goal there is 2 percent.
01:39But we also have a maximum employment objective.
01:42And so we have to balance the two things.
01:44Right now is a particularly challenging time for monetary policy in the U.S.
01:48because we're being challenged on both sides of our mandates.
01:50So in addition to the inflation side, which has been above target for four and a half years,
01:55and from my forecast, probably won't get back to target for another one to two years.
02:02I think end of 27 is what I have in my forecast for when we'll get back to target.
02:06We are starting to see some emerging signs of fragility in the labor market.
02:10Largely, that's come through in the headline payroll numbers that we've seen.
02:16Now, other indicators, other measures of the labor market are reasonably stable.
02:21If I look at the unemployment rate, it's ticked up slightly to 4.3 percent,
02:25but that's right around my estimate of maximum employment.
02:29And it's been reasonably stable between four and 4.3 percent over the past 12 to 18 months.
02:35The headline number on payrolls dropped pretty sharply over the past couple months,
02:39and we have had another year of significant downward revisions in the QCEW study.
02:45And so it is showing that there's something changing in the labor market.
02:50Now, that could be on the demand side.
02:53It could also be on the supply side,
02:54given the sharp changes that we've seen in the immigration picture in the U.S.
03:00Other indicators, whether it's the unemployment rate,
03:03whether it's the vacancies to unemployed ratio,
03:05whether it's the weekly jobless claims number that come out,
03:08would give you better evidence of balance.
03:10Those are more indicative of a market that's reasonably in balance.
03:14Again, it's this low hiring, low firing environment that we've been in for quite some time.
03:19When I'm out in the district talking to businesses,
03:21what I hear from them is that they took a long time to bring their workforce together.
03:27It was very difficult to find the talent they wanted through the pandemic,
03:31and they're loath to let people go.
03:33So when we look at things in the U.S.,
03:34there's an indicator, a notice that companies need to file ahead of mass layoffs called a WARN notice.
03:40When we track those, which we do at the Cleveland Fed,
03:42we're not seeing that trending downwards.
03:46The thing that concerns me the most right now is inflation expectations
03:51and making sure that inflation expectations remain anchored.
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