Christopher Waller, Speech: Monetary Policy in a World of Conflicting Data
“As many economists are discussing, recent economic data have created a puzzle. The labor market continues to be very strong, but the real economy appears to be faltering. How might gross domestic product (GDP) fall in the first half of 2022 while the economy created 2.7 million jobs in the same time period? Is the labor market not as strong as it appears or is the economy doing better than the data suggests?”
“While first quarter real GDP is now estimated to have shrunk by 1.6 percent, according to another estimate, real gross domestic income (GDI) increased by 1.8 percent. GDP and GDI are basically measuring the same activity in different ways, and in the past when such wide gaps in the two numbers have appeared initially, they tend to move toward each other when the data are finalized.”
“Past experience has shown that job creation and the unemployment rate are timely indicators of a recession, more timely than quarterly GDP. I will watch all the data carefully, but the factors I just cited, along with the evident strength across different measures of the labor market, leave me feeling fairly confident that the U.S. economy did not enter a recession in the first half of 2022 and that the economic expansion will continue.”
“Longer-term interest rates have moved up to levels not far from those reflected in Committee members’ estimates of the final destination for the federal funds rate in this tightening cycle,”
“With this view, it should not be surprising that looking toward the FOMC’s next meeting July 26-27, and with the CPI data in hand, I support another 75-basis point increase, bringing the target range for the federal funds rate to 2-1/4 to 2-1/2 percent before August. I judge that level is close to neutral, by which I mean a level that neither stimulates nor restricts demand, assuming that the economy is growing moderately (at its potential) and unemployment is roughly where it is now.”
“Based on what we know about inflation today, I expect that further increases in the target range will be needed to make monetary policy restrictive, but that will depend on economic data in the coming weeks and months. Between the end of July and the FOMC’s September meeting, we will get two employment and CPI reports with data for July and August. I will be looking for signs that inflation has started its move down toward our 2 percent target on a sustained basis.”
“I am expecting total PCE inflation to decline in coming months. But until I see a significant moderation in core prices, I support further rate hikes.”