00:00But on the price stability side of our mandate, the numbers are more concerning.
00:05The Fed's preferred measure of inflation, the one I talked about earlier,
00:10the 12-month change in the PCE price index stands at 3.7 percent,
00:15with the six-month change a little above four.
00:19The comparable measures from the CPI index are also elevated,
00:23as are core measures both of PCE and CPI inflation.
00:27None of these measures are perfect.
00:30But they all tell a similar story.
00:32Inflation is running above our 2 percent target.
00:36So the Fed's predominant focus right now should be on prices.
00:42So what's our job?
00:45The job for policymakers is to capture underlying trend inflation.
00:50Easier said than done.
00:52We want to gauge whether underlying inflation is rising, falling,
00:56or seems to be stuck in place.
00:59We also want to understand not just the direction of travel, but the speed.
01:05Each of these broad inflation measures have fallen significantly from their highs of a few years ago.
01:11The progress of the last couple of years has been more modest.
01:16And while this summer's PCE and CPI readings were better than expected,
01:20they do not tell me that underlying trends have meaningfully improved.
01:26The data also show moderate wage growth.
01:29But in my view, in tracking underlying inflation, wage growth has not proven a reliable indicator
01:36of future inflation for a very long time.
01:41So to try to gauge underlying inflation, I want to tell you about a couple of things I've always looked
01:46to.
01:47I find it instructive to disaggregate the 199 individual components of the PCE price measure.
01:55Over the last 12 months, 54% of goods and services in this basket showed price increases above 3%.
02:05This is well below the post-pandemic highs of about 77%,
02:10but it remains well above the level of 32% in a couple of the decades that preceded the pandemic.
02:16Looking over just the last six months, the conclusion is similar.
02:2049% of goods and services in the PCE basket showed price increases above 3%.
02:27Again, this is well below the post-pandemic highs, but still elevated, quite elevated.
02:34The recent rise in overall commodity prices also bears watching.
02:39What we need to judge is whether the trends we see indicate upside inflation risks.
02:46Now, it matters, too, whether the inflation readings of the past five years have seeped into expectations.
02:54The good news is that measures of inflation expectations in the medium term, by and large, look stable.
03:03And inflation compensation measures from the swaps market send a strong and similar message.
03:11Especially in light of recent developments, it's a credit to the Fed as an institution consistent with the best of
03:19the Fed's traditions
03:20that market prices show confidence that we will deliver price stability.
03:26And I can assure you, they're right.
03:30The thing about market measures of inflation expectations in economic history, I know some economic historians in the audience,
03:38is they all tend to look really strong and durable until they don't.
03:43These expectations are not pushed around easily.
03:46And right now, they are very well anchored.
03:50But they must be closely minded.
03:52And it's the Fed's job to make sure that inflation expectations do not get unanchored.
03:59Now, there is one signal nobody can miss.
04:02The responsibility for 65 months of sustained elevated inflation sits squarely with the central bank.
04:11And that's where it belongs.
04:13So here is my standard.
04:15We must be confident that underlying inflation is moving to our objective.
04:21Clearly and at sufficient speed.
04:24Otherwise, we have work to do.
04:27That's our job.
04:28That's our mandate.
04:29And that's our charge to keep.
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