Business activity declined slightly in New York State in December, according to firms responding to the Empire State Manufacturing Survey. The headline general business conditions ...

Thank you, Mr. Secretary. I appreciate the opportunity to speak here today.1 When I offered my assessment of policy in my first speech as a Federal Reserve Governor in September, I assumed inflation for core goods and nonhousing core services would continue to run at current rates.2 While that was a useful working assumption at the time, today I will break down my inflation outlook in more detail. Specifically, I'll share my interpretation of inflation's components and how this influences my perception of progress toward our 2 percent target. Shelter Inflation Shelter costs are top of mind for households, and a large component of inflation indices. But calculating shelter inflation is far from simple. For instance, the personal consumption expenditures (PCE) price index that the Fed targets includes housing costs for all households in the economy. That seems appropriate for capturing prices associated with all consumer spending but not ideal as a measure of current supply and demand pressures. Figure 1 makes that clear: As the economy emerged from the pandemic, demand for housing outstripped supply, and market rents for new tenants jumped. But the PCE shelter index for all households lagged, as rents only reset when people move or renew their leases. PCE will always lag market rents. As recently as last year, the PCE shelter index still had catching up to do, creating uncertainty as to how long measured shelter inflation would remain elevated. This is no longer the case. Indeed, a separate all-tenant rent index—drawn from the same microdata as PCE shelter—caught up to new-tenant rents, while PCE shelter has actually overshot new rents.3 Based on this catchup being complete, I expect a faster fall in PCE shelter inflation. FED’S MIRAN: CURRENT EXCESS INFLATION IS NOT REFLECTIVE OF UNDERLYING SUPPLY AND DEMAND IN THE ECONOMY Fed's Miran: I expect a faster fall in PCE shelter inflation. Fed's Miran argues tariffs aren't driving higher goods inflation. Fed's Miran argues a measure of underlying inflation near 2%.