00:00Inflation is too high, and I consider the risks to the inflation side of the dual mandate higher than the
00:08risks to the employment side at this point.
00:11As such, I am prepared to act by raising rates if necessary.
00:19The labor market and output growth are currently stable.
00:23I would consider how a rate increase would negatively affect that stability.
00:30Still, I would support an increase if it becomes necessary to bring inflation down.
00:36It may not.
00:38Some disinflationary forces are already in play, which could push inflation toward our target without a rate increase.
00:47Allow me to describe these forces.
00:50First, the effects of tariffs announced last year on the price level are mostly behind us.
00:56Even though those tariffs account for a lot of the elevated inflation seen in 12-month changes, they may no
01:03longer provide much inflationary push going forward.
01:08We should see some disinflation as the early months of tariff pass-through drop out of our inflation window.
01:15However, the exact path of tariff policy remains uncertain.
01:22Second, while oil prices continue to be elevated relative to early this year because of the Middle East conflict,
01:28many forecasters suggest they will come down by the end of the year, providing some deflationary relief.
01:35However, similar to tariff policy, uncertainty remains high.
01:43Third and finally, some of the recent price increases in goods is due to the relative demand shift from the
01:51AI build-out,
01:52as demand for chips especially has led to stark price increases in high-tech electronics.
02:00As supply chains adjust and sector-specific efficiency gains accrue,
02:05I believe some of the inflationary pressure coming from the AI build-out will ease.
02:11For these three reasons, I felt it was appropriate not to change rates while we observe how these factors evolve.
02:20If I do not see signs of continued disinflation soon, I am prepared to act.
02:27With five years of above-target inflation, the risk grows that higher inflation may become entrenched in price-and-wage
02:36-setting behavior,
02:38leading to persistence that would be much harder for us to attack.
02:42The longer inflation is above target, the more likely this scenario becomes.
02:48Thus, while we might be able to afford to wait for longer in a different environment,
02:53we do not have that luxury in this one.
02:58You
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