Christopher J Waller: The inflation rate for necessities - a look at food, energy and shelter inflation

Speech by Mr Christopher J Waller, Member of the Board of Governors of the Federal Reserve System, at the 2023 Arkansas State University Agribusiness conference, Jonesboro, Arkansas, 8 February 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Accompanying charts to the speech 

Thank you, Bert, and thank you for the opportunity to talk about where the economy is heading, what the Federal Reserve is doing to get inflation back down to our 2 percent goal, and how all that is likely to affect American agriculture.

The big picture is that the U.S. economy is adjusting well so far to the higher interest rates that are necessary to rein in inflation. But inflation remains quite elevated, and so more needs to be done. Although economic activity slowed in 2022, I expect the Fed will need to keep a tight stance of monetary policy for some time to slow activity further in 2023. That is what I believe is needed to bring demand and supply into better alignment and lower inflation toward the Federal Open Market Committee's (FOMC) 2 percent target. Some believe that inflation will come down quite quickly this year. That would be a welcome outcome. But I'm not seeing signals of this quick decline in the economic data, and I am prepared for a longer fight to get inflation down to our target.

So, what is my take on the recent data? It looks like the economy grew at a solid pace in the final quarter of the year, the labor market remained tight, and inflation continued to retreat. After adjusting for inflation, personal consumption grew at around a 2 percent rate, though it contracted in the last two months of the year amid some pretty significant headwinds.