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Well, good morning from San Francisco, and thank you very much to all our listeners and viewers around the world. And thank you to Mary Daly for joining us today. I have to start off by saying, after we had the Fed decision, Bloomberg had on a Wall Street analyst who said the important thing now is to find out what Mary Daly thinks, because she was kind of on the dovish side and yet she's not an extreme dove. So I want to get your feelings on it. The story was the dissenters on the bias for the forward guidance. Would you agree with their position? You weren't a voter, but did you agree with their position?
You know, I don't see a lot of confusion in the public when I go out in my communities, talk to businesses, talk to consumers, households. I don't see a lot of confusion. They know the Fed is committed to price stability. That's our first priority right now. The labor market is stabilized. They see that from the adjustments we made last year. So for me, it's really about the right policy decision was the one everybody agreed to, which is hold the rate steady, continue to collect information. And you see in markets pricing, even today, markets have priced in equal probabilities of a cut versus a hike, and the most likely probability is that we hold steady. And I think that's well positioned. So for me, the real signal about the meeting is that everyone agreed to the decision, and the communication that the Chair made in his press conference is, you know, higher for longer relative to last year, but the households, businesses, and markets had already priced that in.
Your colleague for Boston, Susan Collins, told us yesterday that the phrase about additional moves is associated in people's minds with a cut now because it's been following so many times. Do you still feel that that's the path for monetary policy?
You know, it's sometimes sad for Fed officials to realize this, but there are very few people other than all of you and Fed watchers who look at our statement. Most people look at how we position ourselves. And there I would say that most people aren't worrying about that phrase. And so I think the phrasing of the statement is less important than the actions of the FOMC. And the actions of the FOMC have been to really focus on price stability when we think inflation is rising, and really focus on being patient enough to see if the concerns we have are even going to materialize. So, it all comes back to how long does the conflict last. And if it's prolonged, then we might see more spillovers of oil and other commodity prices into other goods and services. And if it comes up quickly, it ends soon, then, you know, the forward contracts on oil are for oil to come back down to around $75 depending on the day. And that is something where our businesses are telling us, oh, we're looking through the shock right now because we don't think it'll last forever, but it won't be forever that we can look through it. I think consumers are doing the same. Look at the spending. They're mostly looking through.
But policy-wise, is the cutting cycle over now?
I don't think, I think it's really too early to tell. If the conflict ends and oil prices come back down and that doesn't get passed into the broader economy, then I expect the underlying dynamics that we were facing prior to the conflict to return, which is policy is slightly restrictive, continues to put downward pressure on inflation. The labor market is stable right now, but it's not creating any inflationary pressures, and businesses are cautiously optimistic. So, that's a good dynamic for the economy and one where I expect inflation to come back down to our 2% target. But the main issue is what is the risk out there? How does the oil price shock move its way through the economy? How long does the conflict last? And can we really get that 2% target that we've been working towards? That's what we're determined to do, is achieve that.
Can you get to that target? The Fed watches inflation expectations. The New York Fed survey of consumers today showed inflation expectations rising to 3.6% for the next year. Are you in danger of having those become unanchored?
You know, the short-term inflation expectations are a reflection of what people are feeling right now at the gas pump, in the grocery stores, etc., as fertilizers and other things start to spill over. That is not something that indicates a drift of the anchor. What we really have to focus on is does that translate into a move in medium-term inflation expectations or longer-run inflation expectations. You really don't see that right now, but that's not satisfying to say we don't see it, so it's not there. You have to dig deeper. What are we really seeing in terms of wage negotiations? What do we see in terms of firms passing along things? So, I spend a lot of time, as you know, going around the 12 districts, and I just don't find a lot of producers and sellers feeling like they can pass through the price increases to consumers and have consumers stay in the game. So, you're seeing some surcharges emerge on energy, but other than that, you're not seeing a lot of pass-through as of yet. So, I think the economy is in a place where I wouldn't jump to the conclusion that we're going to have persistently high inflation. I would jump to the data and say what can we see, and the inflation expectations being well anchored is an important component of our ability to be patient.
Well, we've been largely talking about energy inflation here. Tariffs are still on, and according to the administration, there are more coming within the next month or so. What are companies saying about how they're dealing with this now that they're a year into it?
Well, right now they're trying to get refunds if they're eligible for them, and they're working towards that, but they didn't, you know, not all of them passed through the full tariff burden. They split it up on things, and they see those burdens as rolling off. That is more or less coming back to normal. You know, tariffs are a one-time price adjustment, and they calculate how much can I take out of margins, how much can I share with other producers, how much do I need to pass along to consumers. So I would say that's in train and moving in the direction we had anticipated. The new information is that we got an oil price shock added to that, while inflation has been elevated for almost 5 years, and so consumers are just feeling the ongoing pressure of dealing with higher price levels and inflation that's above our target. So, you know, the way I think about that is we have to continue to work towards restoring price stability, but overreacting to the news or an expectation that something's coming down the pipe can be as damaging to the economy as underreacting. So, you have to balance both of those risks and really watch the information that we have, not just the backward-looking information about what inflation did last month, but the forward-looking information about how consumers, producers, and sellers are really responding to the challenges ahead of them.
Well, Chairman Powell in his news conference suggested that there is a concern, or at least he has a concern, that after a number of supply-side shocks in the last 5 to 10 years, consumers are no longer thinking that 2% is normal.
