00:00In March, I wrote down that I thought four cuts was appropriate for this year.
00:03If I were writing down a dot today, I don't know, I might have three, I might have four, I'd
00:07have made up my mind.
00:08But, you know, certainly going into things, things looked a little bit less good than they had beforehand.
00:12But still on track to hit 2% inflation about a year from now, in spite of what's happened with
00:20the war, in spite of what's happened with that.
00:23If you look at inflation going forward, beyond what's already occurred, I do think it's reasonable to expect core goods
00:30to come down.
00:31Maybe not all the way down to where they were before the pandemic, but I still think it makes sense
00:35for them to come down,
00:36given the state of aggregate demand and aggregate supply balances, not in the U.S., but globally.
00:40I think it makes sense for housing service inflation to continue going down even more aggressively below pre-COVID levels
00:46than it has been,
00:47given market rents have been running at about 1% for a few years now.
00:51Basically, I think we pulled forward an entire, you know, many years' worth of housing price and rent inflation
00:57into just a small period after the pandemic, and that real home prices have to come down relative to everything
01:02else.
01:02And that means housing inflation is probably going to be moving sideways at a lower level for a longer period,
01:09at a lower level than this for a longer period of time.
01:11And the combination of those two things, I think, will net out to being pretty close to target about a
01:18year from now.
01:18You know, when I look in the middle of next year, I think 12-month PCE will have been running
01:22at around 2%.
01:24Now the question is, of course, what happened with the war, right?
01:28Which is what you asked me.
01:29So now I'll answer the question you actually asked me.
01:32Which is that, you know, sort of the classical, you know, Fed response to an energy shock like this is
01:38monetary policy lacks, right?
01:40What we do with interest rates affects the economy 12 to 18 months from now.
01:44If the effect of energy on the economy boosts the price level immediately, but not 12 to 18 months from
01:51now,
01:51then there's nothing that you can really do about it.
01:54And so therefore you have no choice but to look through it.
01:57If you thought that price levels were going to be moving higher, not now, not next month, not, you know,
02:02in June,
02:02but 12 to 18 months from now when the monetary policy lags have passed and monetary policy can actually affect
02:07the economy,
02:08then you have a reason for responding to the energy shock.
02:11At this moment, I don't have a reason for thinking that the energy events, the war,
02:17has changed the modal outlook for inflation relative to where it was 12 to 18 months from now,
02:23changed the modal outlook for inflation 12 to 18 months from now relative to where it was before the war.
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