00:00Is the anchor itself being at 2% enough comfort to wait until it moves?
00:05Absolutely not.
00:06By the time the anchor drifts, it's really hard to get it back.
00:09And, you know, you think about the decade that preceded the pandemic.
00:13FOMC spent a tremendous amount of time trying to get inflation up to 2%
00:17because we were worried the anchor was going to fall to the other side.
00:20I think that same vigor has to be applied when we think it could go up the other way.
00:26The reason I showed it was just to say we don't have a current alarm bell sounding off
00:31in the longer-run inflation expectations.
00:33But I think those other measures that I looked at, you know,
00:37what happens to expectations in the shorter durations for businesses, market expectations?
00:43Importantly, what happens to firms?
00:45If firms start to begin to tell us that they either have to pay more to their workers
00:50because of the burden of inflation,
00:52or even in a stable or evenly balanced labor market,
00:56or they're just margins are compressed so much,
01:01they're going to try to pass price input costs along,
01:05well, then I think we have to guard against a drift.
01:08You know, I think of it as the anchor check
01:11is something you must do to make sure you don't have a problem of drift
01:16that you just aren't paying attention to.
01:18But it provides little comfort in terms of how one does the work
01:23because Congress didn't say keep inflation expectations well anchored for the United States.
01:27It said keep price stability in place.
01:28And so it's really price stability that's the goal.
01:31And if we see a movement off price stability,
01:34that's why I thought the conventional dynamics of shocks versus compounding shocks is more relevant
01:39because it really asks the question,
01:41what's the nature of our outlook
01:44and how much does it depend on taking the textbook case on shocks
01:47and just applying it to the current world?
01:49And is that really a reasonable explanation right now for how the world might go?
01:54So I tend to lean a little more on let's be thoughtful about this,
01:58but why wait?
01:58Why wait is because we'll get more information about what's happening with the tariff shock.
02:03We'll get more information about the war.
02:05And we might have a very different situation if both of those look like they're subsiding.
02:09And then our last journey is to figure out what's happening on the AI shock.
02:13That could look very different than if the war continues, the tariffs,
02:17it was a little bit of a good news that dissipates and goes away.
02:22And then we find ourselves in a position where we've got three shocks,
02:26elevated inflations and small comfort
02:29that longer run inflation expectations remain well anchored.
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