US: Seeing Through the Shutdown’s Missing Inflation Data

Thank you for the invitation to speak to you today.1 Before I get into my main topic, I wanted to share my current views on the economy and monetary policy. Last week, we received the latest report on employment, and it provided further evidence that while the labor market slowed through last summer, it is now stabilizing. This stabilization is occurring with an unemployment rate that is broadly consistent with what many estimate is its long-run level, when the economy is in balance. That said, job creation has been near zero over the course of last year, as has labor force growth. With very low levels of job creation and also a low firing rate, there seems to be a tentative balance in labor supply and demand. But it is a delicate balance, and that means that the labor market could be especially vulnerable to negative shocks. Turning to the other component of our mandate, inflation based on personal consumption expenditures remains elevated at 3 percent, about where it was a year ago. Disinflation, which started in mid-2022, slowed last year, as goods price inflation picked up, in large part due to tariffs. That pattern appeared to continue in the inflation data released last week. Looking ahead, it is reasonable to forecast that tariff effects on inflation will begin to abate later this year, but there are many reasons to be concerned that inflation will remain elevated. I see the risk of persistent inflation above our 2 percent target as significant, which means we need to remain vigilant. The prudent course for monetary policy right now is to take the time necessary to assess conditions as they evolve. I would like to see evidence that goods price inflation is sustainably retreating before considering reducing the policy rate further, provided labor market conditions remain stable. Based on current conditions and the data in hand, it will likely be appropriate to hold rates steady for some time as we assess incoming data, the evolving outlook, and the balance of risks. FED’S BARR: PRUDENT TO TAKE TIME, LOOK AT DATA, BEFORE CHANGING FED POLICY AGAIN - OUTLOOK SUGGESTS FED WILL HOLD RATES ‘STEADY FOR SOME TIME’ - AI BOOM IS UNLIKELY TO BE A REASON FOR LOWERING POLICY RATE - AI COULD RAISE NEUTRAL RATE, IMPLY HIGHER SETTING FOR POLICY ...

Good afternoon and thank you for that kind introduction. And thank you to the Silicon Valley Leadership Group and to San Jose State University for having me here. I am looking ...