Fed Chair Powell on Inflation Drivers: Tariffs, Housing, and Services

Interpreting the Latest CPI Report

• 📈 The September CPI report showed some components softer than expected, but core inflation remained at 3%.
• 📊 The Fed breaks down inflation into three components: goods, housing services, and other services.

Drivers of Current Inflation

• ⚠️ Goods prices are increasing, primarily due to tariffs, contrasting with a longer-term trend of mild deflation in goods.
• 🏠 Conversely, housing services inflation has been decreasing and is expected to continue this downward trend.
• 📊 The largest category, services other than housing, has been moving sideways, with a significant portion being non-market services.

Inflation Outlook and Risks

• 🎯 Inflation, excluding tariffs, is estimated to be close to the Fed's 2% goal, potentially around 2.3% or 2.4% for core PCE.
• ⚠️ The inflation increase from tariffs is expected to be a one-time event, but the Fed is monitoring for risks of it becoming more persistent.
• 📉 Key risks monitored include a tight labor market and moving inflation expectations, neither of which are currently observed.

Addressing Stubborn Services Inflation

• 💡 The Fed expects the non-housing, non-market part of services inflation to decrease, partly reflecting higher stock prices and imputed financial services.
• 🏦 Current monetary policy is considered modestly restrictive, which should lead to a gradually cooling economy and labor market.
• ✅ The Federal Reserve is committed to returning inflation to 2%, a commitment reflected in longer-term surveys and market pricing.