Progress on inflation has slowed

Federal Reserve (Fed) Bank of Philadelphia President Patrick Harker added his voice to a procession of Fedspeakers on Thursday, highlighting that inflation progress has “slowed”. Policymakers from the Fed are scrambling to pre-soften markets in advance of this week’s upcoming Personal Consumption Expenditures Price Index (PCEPI) inflation print, which is most likely headed for an upside beat as inflation pressures begin to cook once more under the hood of the US economy.

Key highlights

The policy rate remains restrictive enough to continue putting downward pressure on inflation.

The Fed watches the data, then reacts if we must.

We should let monetary policy continue to work.

The policy rate is not negatively impacting the economy.

Progress toward 2% inflation target has slowed.

I am optimistic on the economic outlook, despite the challenge of getting inflation back to target.

We should not move to act on policy in either direction based on one report covering one month of data.

In December, I was on the fence between thinking 1 or 2 rate cuts appropriate this year. Right now, there’s a lot of uncertainty.

With uncertainty, I’m in the camp of, for now, let’s stay where we are.

Barring any change in inflation reports, sitting here is the appropriate thing.

We are restrictive now.

Surveys on inflation expectations and consumer sentiment show that consumers are getting nervous.

We cannot let inflation expectations tick up, we need to give it a little more time to see where it will land.

We should not take any action off the table, we could move in either direction.

We are heading back to the trend in the labor market, and slowly but surely on inflation.

At some point, shelter inflation has to move down.

Policy is mildly restrictive.

I am skeptical of the sustained and dramatic productivity increase.