00:00Current conditions in the United States indicate that output is growing at a solid pace and the
00:04labor market remains close to my definition of maximum employment. But inflation remains elevated
00:10and it has now run above the FOMC's 2% inflation objective for more than five years.
00:15The inflation outlook continues to be highly uncertain with risks tilted to the upside.
00:21One aspect that is proving especially challenging for monetary policy is the extended sequence of
00:27shocks that we've recently faced from both the supply side via tariffs and oil prices as well
00:33as from the demand side from the boom in capital spending related to AI. The conventional view is
00:39that monetary policy should look through a supply shock. The thinking behind that as all of you well
00:44know is that supply shocks tend to be transitory and lead to a one-time increase in the price level
00:49rather than a persistent increase in inflation or inflation expectations. Thus policymakers can look
00:55through them when determining the appropriate path of policy. But when the environment is more prone
01:00to shocks or the shocks arrive one after another in a period when inflation has been elevated for years
01:06there's a greater risk that an inflationary mindset could take hold. The longer that high inflation persists
01:12the more challenging and costly it can be to bring it back down.
