But, while core PCE inflation over the last three months has declined to our 2 percent target, there are a couple of reasons to be concerned that this progress might not continue. First, in the latest CPI report, despite expectations of continued deceleration, housing services prices jumped from a monthly change of 0.3 percent to 0.6 percent. I have been concerned since May about a resurgence of housing services inflation and this number heightens my concern that housing services inflation has not slowed, and may not slow, to the rate needed to sustain a return to our 2 percent target. Similarly, supercore inflation, which is core services excluding housing, has continued at a robust monthly rate of about 0.5 percent the past two months. Again, this reading is not at a level needed to make progress toward our goal and we need to watch and see if these numbers indicate that inflation is reaccelerating.
The second reason to be concerned is that, while there is some basis for expecting that inflation will continue to fall, let me remind you, as I have done repeatedly, that we have seen a string of good inflation reports evaporate multiple times in the recent past. So I will be watching the next several reports for clearer indications that inflation is on a trajectory to 2 percent.
What does that mean for monetary policy? I will be looking carefully at the data to see whether the real side of the economy begins to cool off or whether prices, the nominal side of the economy, heat up. As of today, it is too soon to tell. Consequently, I believe we can wait, watch and see how the economy evolves before making definitive moves on the path of the policy rate. Should the real side of the economy soften, we will have more room to wait on any further rate hikes and let the recent run-up on longer-term rates do some of our work. But if the real economy continues showing underlying strength and inflation appears to stabilize or reaccelerate, more policy tightening is likely needed despite the recent run up in longer term rates.
So I will be watching to see if core inflation comes in higher than expected, perhaps sustained by continued strength in spending and investment or, if demand and the real economy slow, moderating core inflation. My views on the appropriate path for policy will be based on a careful assessment of incoming data and financial market developments and a judgement about whether we are continuing on a path of sustained progress toward 2 percent inflation.
Thank you. I am happy to take some questions.
1. The views expressed here are my own and not necessarily those of my colleagues on the Federal Open Market Committee. Return to text
2. This fact holds for both auto and credit card delinquencies across all levels of the income distribution. Return to text
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