Japan: Indices of Industrial Production for July, 2025 (Preliminary Report)

Thank you, Jon, and thank you for the opportunity to speak to you today. Since I last spoke on the economy and monetary policy on July 17, economic data have reinforced my view of the outlook and my judgment that the time has come to ease monetary policy and move it to a more neutral stance. In July, I argued that, looking through tariff effects, with underlying inflation near target and the upside risks to inflation limited, the Federal Open Market Committee (FOMC) should not wait until the labor market deteriorates before we cut the policy rate. Based on all the data in hand, I believe this argument is even stronger today, and that the downside risks to the labor market have increased. In July, I warned that job creation was weaker than it seemed in the payroll numbers and that data due in early September would indicate that payroll growth will be significantly lowered when annual revisions are made next spring. But even before then, job creation came in soft in the employment report for July, and May and June were revised down sharply, for a three-month average pace for total nonfarm payroll growth of only 35,000. After accounting for these revisions and what we will learn in a couple of weeks, the data are likely to indicate that employment actually shrank over those three months. I will have more to say about labor market data revisions and how they should be treated in evaluating the monthly jobs report, one of the most valuable tools we have for judging economic conditions. I favored reducing the federal funds rate by 25 basis points at the FOMC's July meeting, and subsequent data on the labor market and inflation indicate this was the right call. That also seems to be the message from financial markets, which now expect a 25- basis-point cut at the FOMC's September meeting and put significant odds on an additional one or two cuts at the final two meetings of 2025. As I will discuss, factoring out estimates of the temporary effects of import tariffs, underlying inflation remains close to 2 percent. I believe the data on economic activity, the labor market, and inflation support moving policy toward a neutral setting. Based on the median of FOMC participants' estimates of the longer-run value of FED'S WALLER: THE TIME HAS COME TO MOVE POLICY TO A MORE NEUTRAL STANCE Fed's Waller: He Anticipates Additional Rate Cuts Over Next 3-6 Months - Would Support 25 Bps Cut At Fed's September Meeting - Don't Believe A Bigger September Cut Is Needed, Unless August Jobs Report Shows Substantial - Weakening And Inflation Stays Well-Contained WALLER: WANTED RATE CUT IN JULY, FEELS MORE STRONGLY ABOUT IT NOW Fed's Waller: Underlying Inflation, Factoring Out Temporary Effect Of Tariffs, Is Close To 2% - Labor Demand Is Weakening, And That Is Not Good - Downside Risks To Labor Market Have Increased