On Powell at Brookings

Powell repeated his key talking points from the November FOMC, about the need to slow down the hiking cycle due to lags, and the possibility of a higher-for-longer peak funds rate. There were two important subtleties. First, Powell posited that effects of the Fed’s aggressive hiking have not been felt yet. Because all measures of inflation have peaked, he must now ask why they have done so if it’s not his policy. Second, he acknowledged the distortive effects of sticky OER in inflation statistics, and noted that new-lease measures are pointing to a rollover in this key category. This positions him to do what we do – filter the noise from the signal in inflation by taking out the most volatile and the most sticky components. Core CPI ex-OER peaked all the way back in February, and our model forecasts it will hit the Fed’s target next May.