John C Williams: Ever upward Remarks (via videoconference) by Mr John C Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, at St. Lawrence University, 8 September 2021. * * * As prepared for delivery Good afternoon, everyone. Thank you to St. Lawrence University for hosting today’s event. It’s especially exciting to be here at the start of an academic year, and I hope you all have a safe and successful fall semester. The motto for New York State is “Excelsior,” meaning “ever upward.” What better way to get the full New York experience than by spending time—even virtually—in the North Country. These visits around the Federal Reserve’s Second District are one of the highlights of my job, and something I very much look forward to doing again in person when it’s safe to do so. It’s now been about a year and a half since the pandemic took hold. Over that time, there’s been much change: phases and stages, highs and lows, shifts and swings, downturns and reversals. The virus and its effects on the economy are ever evolving. On top of that, the unusual and extraordinary nature of this crisis means circumstances are far beyond the norm for typical economic recessions and recoveries. Even while there are significant improvements in some areas, setbacks persist in many others. And now, the emergence and rapid spread of the Delta variant in parts of the country and around the world has introduced a new layer of uncertainty.
Recent data show core inflation, which excludes volatile food and energy prices, running at about 3-1/2 percent, which is well above the Federal Reserve’s longer-term 2 percent goal. Taking a closer look at the data, it’s clear that this spike in inflation largely reflects the transitory effects of the rapid reopening of the economy, which is pushing supply and demand in extreme ways. As the economy gets through these unusual dynamics, I expect inflation to come back down to around 2 percent next year. Given the complexity of this topic, I’ll go into this in more detail. I find it helpful to view recent developments in terms of three categories. The first is related to prices for goods and services that underwent huge declines during the pandemic but are now rebounding as the economy reopens. For example, in the first year of the pandemic, prices for airfare and lodging fell sharply as people cut back on travel. Since then, we’ve seen these rebound toward their pre-pandemic trends, pushing the inflation rate up. One simple way to get a better read of inflation that is not overly influenced by these big swings in prices is to take the average inflation rate from the start of the pandemic. That calculation shows that core inflation has averaged 2-3/4 percent since February of last year. But even that number is heavily influenced by the effects of the pandemic on the second category: used vehicles.