Tom Barkin, Speech: What’s Keeping Inflation Elevated? 

Inflation

“The question of when inflation gets back to normal is an important one for policy, so I want to spend some time on it. Some believe this will happen pretty quickly. Until a recent upward spurt, that’s where markets were.”

Returning prices to the stability of the last 30 years will likely take a lot more time and effort. I think my view is in step with the actions of the Federal Open Market Committee (and with the most recent Summary of Economic Projections (SEP) that showed inflation not returning to 2 percent until 2025).

Inflation Expectations

“And I’d also point to inflation expectations. While they remain well anchored on average, there’s been enough movement under the surface to warrant caution.”

Fed Funds & Rate Cuts

“Monetary policy plays an important role here. We have raised rates and reduced our balance sheet aggressively in the last year in an effort to bring demand and supply back into balance. Inflation is likely past peak. But I think it will take time to return to target, and, as a consequence, believe we still have work to do. We have forecasted additional rate increases and the SEP has made clear that we don’t anticipate rate cuts this year.”

25bps or 50bps

“But with real rates having risen dramatically in the last year, and sitting at positive levels across the curve, it makes sense to move more deliberately than we did last year. Here’s where I come back to data dependence. If I’m right and inflation persists, we can react by raising rates further. And, of course, I’d be happy to be wrong.”