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Chair Powell Asked On Where The Disinflation Is Coming

FED
  • Q: Where's the disinflation coming from? What's the narrative? It seems like it's getting more immaculate.
    • A: You're right. The data came in, I would say consistent with but on the high side of expectations. The changes in SEP forecasts point in the same direction, which is that perhaps more restraint will be necessary than we had thought at the last meeting. So although the 5.6% is pretty consistent if you think about it, where the Fed funds rate was trading before the bank incidents of March, so we've kind of gone back to that.
    • So where is the disinflation going to come from. I don't think the story has really changed. The Committee has consistently said and believed that the process of getting inflation down is going to be a gradual one. It's going to take some time. You go to the 3-part framework for core PCE [repeats about core goods / shelter / core services ex-shelter framework he's discussed many times before].
    • We only see the earliest signs of disinflation in ex-housing services. Many analysts would say the key to getting inflation down there is to have a continuing loosening in labor market conditions, which we have seen. There are a number of indicators suggesting that. We need to see that continue. I would almost say that the conditions that we need to see in place to get inflation down are coming into place. And that would be growth meaningfully below trend. It would be a labor market that's loosening. It would be goods pipelines getting healthier. The things are in place that we need to see, but the process of that working on inflation is going to take some time.
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