Former Kansas City Fed Pres. Esther George: I'd be surprised if inflation moves down much at all

Key Concepts

• FOMC (Federal Open Market Committee)
• Inflation (2% target)
• Dual Mandate (price stability and maximum employment)
• Fiscal Situation
• Inflation Expectations
• Tariffs
• Labor Market
• Personal Income
• Risk Management
• Policy Stance

FOMC and Incoming Data

The FOMC will continue to focus on incoming data, business contacts, and community leaders to understand the economy's evolution. The recent inflation report indicates that inflation is not accelerating, which is positive. However, it doesn't confirm further progress toward the Fed's 2% inflation target. The messages from the FOMC remain valid.

Fed's Policy Stance and Economic Evidence

There is no clear evidence that the Fed is late in its policy decisions. The labor market is holding up, and personal income is stable. The economy is generating economic activity despite uncertainty. Elevated inflation prevents the Fed from taking risk management moves related to changing its policy stance.

Inflation Outlook and Fiscal Situation

Inflation is unlikely to decrease significantly by the end of the year. Tariffs could accelerate inflation, but the fiscal situation is a more significant concern. There are no apparent factors that will exert downward pressure on inflation, aside from the Fed maintaining its current policy stance. Policymakers are focused on keeping inflation expectations well-anchored, suggesting that rate cuts are unlikely in the near to medium term.

Factors Influencing Inflation

Oil prices are an important factor in household spending, and lower oil prices are beneficial. Housing costs continue to exert pressure. Changes in the workforce, such as federal workers leaving and shifts in immigration policy, also play a role. It's uncertain whether the current inflation trend will continue or if other factors will cause it to change direction.

Tariffs and Economic Robustness

Initial tariff announcements were concerning, but businesses can be resilient in the face of shocks. The composition of goods versus services in the economy is a factor in determining the significance of tariffs. The impact of tariffs is still uncertain, as negotiations are ongoing. Judgment should be withheld on whether tariffs have been detrimental to the economy.

Notable Quotes

• "Inflation is not accelerating. That is good news. It doesn't, however, tell us that we are making further progress toward the Fed's 2% inflation target." - Esther George
• "When you hear policymakers focused on keeping inflation expectations well anchored, which is essential in this environment, it doesn't suggest to me that in the near term or even medium term forecast, you'd be talking about cutting rates." - Esther George
• "Businesses can be very resilient in the face of any number of shocks. It just takes a bit of time for them to work through it." - Esther George

Conclusion

The Fed is expected to maintain its current policy stance, focusing on incoming data and inflation expectations. While recent inflation data is encouraging, significant progress toward the 2% target is not yet evident. Factors such as the fiscal situation, workforce changes, and ongoing tariff negotiations contribute to uncertainty in the economic outlook.