You have gained a reputation for being the most hawkish person in this regard. However, I cannot fully characterize you at moment as things have changed recent months.
But you indicated that there may be room further action. How much more action do you think the might require? Are we only talking about the one move from the September dot plot? Or if we need to start raising rates again, do we have to go even further? Most likely. First of all, I’m glad to see you.
Thank you for having me. People are seeking certainty, and I wish I could provide it.
However, there have been many unusual factors at play in the reopening of the economy, the dynamics leading to high inflation, the time taken, and the dynamics of the disinflation process. I wish I knew. We have to rely on the inflation and labor market data to guide us.
It’s worth noting that our forecast accuracy has not been great in recent years. All members of the FOMC are committed to reaching a 2% inflation target. We need to bring inflation back down to 2% over a reasonable period of time. Ultimately, the economy will dictate how much action is necessary to achieve this, and I simply don’t know.
At what point do you believe you have tightened enough, or not enough? What signals are you looking for? Here’s some good news: the core personal consumption expenditures (PC) index on a three-month basis is currently at around 2.5%, which is lower compared to the six-month and one-year data. This indicates that disinflation is occurring.
If we continue to see inflation numbers within that range, 2.5% or lower going forward, it would suggest that we are on a path towards 2% inflation. However, we must keep in mind that three months of data is a limited sample, and if we observe an upward trend, it would tell me that our job is not yet complete..
