00:00The labor, consumption, and financial data indicate that monetary policy is not restraining the economy.
00:06And that's a problem for sustainably achieving the FOMC's inflation goal.
00:11If inflation is not heading all the way to 2% on its own,
00:15then at least some policy restricted is needed to help it get there.
00:21Moreover, the FOMC has committed to taking a balanced approach to those two dual mandate goals.
00:27In my view, we should not perpetually achieve one goal while missing on the other.
00:33History shows that when central banks try to hold down unemployment by accepting persistent inflation,
00:38they often end up with more inflation and more unemployment.
00:42If higher inflation becomes entrenched, we'd need sharper rate increases to bring it back to target,
00:49with a larger cost for the labor market.
00:52Better modest restriction now than severe restriction later.
00:58Appropriate monetary policy also accounts for risks.
01:02The economy can always surprise in either direction,
01:05but downside risks to employment have faded after drawing focus late last year.
01:10And the inflation risks are mainly to the upside.
01:14Conflict in the Middle East reignited over the weekend and pushed up the price of oil.
01:19Even if commodity shipments resumed soon, business contacts tell me consumer price pressures could last longer.
01:27Capacity constraints at refineries will lift fuel prices regardless of global oil supply.
01:33Industries like airlines that are seeing strong demand may not rush to take back recent price increases.
01:40And looking beyond geopolitics, the AI investment surge could trigger non-linear price increases.
01:47That's already happening in a few narrow categories, as you know if you've had occasion to buy computer chips recently.
01:54The risk is that the pressures broaden as AI demand touches construction, power generation, and other sectors.
02:01So to sum up, inflation has been too high for too long and does not appear to be on track
02:07all the way to our 2% target.
02:10And the inflation risks are to the upside.
02:13The labor market, meanwhile, is solid.
02:15And without any policy restraint, these conditions are likely to continue until there's an unanticipated shock.
02:22So I currently believe modestly higher interest rates would better balance the outlook and risks for the FOMC's maximum employment
02:29and price stability goals.
02:32Of course, the economy's dynamic and more data arrives nearly every day.
02:37If the outlook changes, I'll update my policy views accordingly.
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