00:00From my perspective, the biggest risk that I see with inflation right now is that an inflationary
00:04mindset could start to set in. In the U.S., we've been missing on our inflation objective for more
00:09than five and a half years. And we had a number of factors that have happened over that period.
00:16There have been a variety of supply shocks, certainly the pandemic in the first instance.
00:22And then in 2024, after we'd made good progress getting inflation from above 7 percent
00:28to below 3 percent, we started to get a little bit focused on the other side of our mandate,
00:35on the employment side of our mandate. And so we reduced rates to help support that side of our
00:40mandate. But since then, we've been hit with a couple of other shocks. Certainly there have been
00:43tariff shocks, the recent energy shock. But now what I'm seeing and hearing from businesses is that
00:48we have pressures on the demand side as well as the supply side. And so with us not really having
00:55tension in the mandate, growth has held up reasonably well. The employment side of our mandate has been
00:59right around my estimate of maximum employment. The concern is that, you know, could we see things
01:07heating up? You know, if anything right now, when I'm out traveling the district talking with businesses,
01:12I hear that spending is very resilient. We've been expecting the consumer to step back for quite a number
01:18of years, and they really haven't. They've continued to spend. And that's been fueling the economy.
01:21The CapEx spend that's happening related to AI is another source of pressure. And that is probably
01:27going to continue for some time. And so it's important, given that we've been missing on the
01:32inflation side of our mandate for so long, that we have a restrictive stance of policy to help bring
01:37that inflation back down to our target. And my concern is that if we don't make real progress in
01:43getting back there, you could have this inflationary mindset start to set in. And so what do I mean when
01:48I say inflationary mindset? It means that businesses and households become tolerant of
01:54inflation, that they expect this above target inflation to continue and to persist. For example,
02:00we have a retailer in the district that I was speaking with who said they've been hit with so
02:03many different supply shocks and different pricing pressures over time that when they're thinking
02:09about their costs for next year, they look at what their input costs are going to rise by,
02:13and they add a little bit more on top of that to make sure that they're covered for any surprises
02:17that might happen. Now, I'm not hearing that broadly, but that's sort of that early evidence of
02:21that inflationary mindset setting in that I really want to make sure we can get on top of.
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