00:00The federal funds rate is our primary tool for making monetary policy, and I expressed a preference at the meeting
00:08to raise the federal funds rate by 25 basis points.
00:11I did so for two reasons.
00:13The first reason is that with interest rates at their current levels, I judge based on my staff's analysis and
00:23on outreach that we do that the probability that inflation will be meaningfully above target a year from now or
00:32a year and a half from now is higher than the probability that inflation will converge back to our 2
00:38% target.
00:40The second reason is that I believe that earlier, gradual, incremental interest rate increases are preferable, less disruptive, less costly
00:54than potentially later, more abrupt interest rate changes.
01:01So that's the summary of the meeting as far as I saw it.
01:05Thank you so much.
01:09The inflation, be it headline or core, has been running above target for quite some time now in the U
01:15.S. and other countries, including our own as well.
01:19What are the risks and implications for this persistent overshoot of inflation?
01:24So inflation is high.
01:26It's above target.
01:28When I look at underlying inflation, after looking at a lot of analysis that my staff does, I believe it's
01:36running between 2.5% and 3%, excluding all the supply shocks, so just excluding demand and trend.
01:44Looking ahead, I see two scenarios.
01:46Really, there are many scenarios, but let's boil them down to two scenarios.
01:51Under one scenario, the supply shocks fade in the remainder of the year.
01:59Oil prices come down.
02:01The impact of tariffs fade.
02:04And the labor market continues not to be a source of inflation, which it isn't.
02:10And under that scenario, it is possible that inflation begins to trend back down towards 2%.
02:19To see if that scenario is materializing, I'd be looking to see monthly inflation rates slightly below two-tenths.
02:26That would tell me, okay, we might be in this scenario.
02:29It's a plausible scenario.
02:30There is another scenario, though, and right now we're getting upward inflation pressure both from supply factors and from demand
02:40factors.
02:40So we have recurring supply shocks and we have persistent demand pressures.
02:45Both are contributing to inflation.
02:46And, you know, in that scenario, if things continue that way, it is possible that inflation settles between 2.5
02:58% and 3% or higher a year from now.
03:02And that's how I'm seeing the scenarios.
03:05The second scenario requires, in my mind, somewhat higher interest rates to address that.
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