00:00If the Strait of Hormuz opens, as it looks like it might have today, and trade flows return back to
00:05something like normal,
00:06then I'm going to look through the effect of these energy prices on inflation, because I know it will unwind.
00:12And my focus will continue to be on the labor market, how it evolves in the current no-hire, no
00:19-fire environment.
00:21Now, here, abstracting from the effects of tariffs and energy, I see a forecast in which underlying inflation continues to
00:28move toward 2%,
00:30leaving me cautious about rate cuts now, and are more inclined to cuts later in the year to support the
00:38labor market when the outlook is more steady.
00:42But the longer energy prices remain elevated and the Strait is constrained,
00:46the greater the chances that higher inflation gets embedded across a wide variety of goods and services.
00:54Various supply chain effects can start to emerge, and real activity and employment start to slow.
00:59I will be particularly attentive to indications that this latest price shock,
01:04on top of the effects from tariffs from last year, has moved up inflation expectations.
01:12Now, a slower economy would restrain demand for goods and services,
01:15and perhaps soften the increase in prices.
01:18But I expect higher inflation than in the first scenario, and that it would be elevated for some time.
01:24In that case, I also believe we would have a weaker labor market.
01:29Now, high inflation and a weak labor market is a very complicated problem for us policymakers.
01:36Do you raise rates? Do you cut rates? Do you just stay where you're at?
01:40That's the problem.
01:42Now, if I face this situation, I'll have to balance the risk of those two sides of the Fed's dual
01:48mandate
01:48to determine the appropriate path of policy.
01:52And that may mean maintaining the policy rate at its current level
01:57if the risk to inflation outweigh those to the labor market.
02:00No, I'll be able to look at that scope of those two constraints,
02:00but that's it.
02:00Here we sector the prac.
02:00And the regen-by-shed hymn at come.
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