Tom Barkin, Speech: Winning the War on Inflation

“I see inflation coming down in three lanes.”

“First, demand should flatten, reducing pricing pressure.”

“Second, pandemic supply chain challenges should heal as pandemic pressures ease and companies adjust.”

“And finally, there’s the commodities lane, items like oil and wheat … we are seeing over the last two months, the dollar strengthening and gasoline and even the broader range of commodities dropping from peak pricing levels.”

“At the same time – as I mentioned – inflation is moving the Fed to increase rates. Historically, eight of the last 11 Fed tightening cycles have been followed by some sort of a recession.”

“So there is a path to getting inflation under control. But a recession could happen in the process. If one does, we need to keep it in perspective: No one canceled the business cycle. We are out of balance today because stimulus-supported excess demand overwhelmed supply constrained by the pandemic and global commodity shocks. Returning to normal means products on shelves, restaurants fully staffed and cars at auto dealers. It doesn’t have to require a calamitous decline in activity. Indeed, lower prices may create room for consumers to spend again. As for financial markets, they are not the economy. And baselines matter. Equities are down this year but still significantly up from pre-pandemic levels. We might soon have the same conversation about houses were prices to slip after two years of extraordinary gains.”