In addition, measures of underlying inflation also remain elevated and well above our 2 percent longer-run goal. For example, after declining earlier in 2022, the New York Fed's Multivariate Core Trend has been hovering around 3-3/4 percent for the past few months.1 Similarly, both the Dallas Fed's trimmed-mean PCE inflation rate and core inflation that excludes food and energy prices averaged around 3-3/4 percent over the past six months. So, our work is not yet done. Inflation is still well above our 2 percent target, and it is critically important that we reach that goal. Supply and Demand Misalignment To help illustrate how tighter monetary policy is working to reduce inflation, I like to use an analogy inspired by a mechanism that consists of different gears.2 In this case, I'll hearken back to a time before rechargeable batteries, and even before quartz, to the age of the mechanical watch. Our watch represents the economy, and its gears are different sectors. Some gears spin quickly; others turn slowly. They need to turn at the right speed to keep time accurately-or, in this example, to maintain balance in the economy. The gears are propelled by supply and demand, which act as the mainspring of our watch. But they have been misaligned since the onset of the pandemic. At first, when people were home and factories were shuttered, demand shifted strongly from services to goods, which were scarce due to supply-chain bottlenecks.
In addition, the severe supply-chain bottlenecks that initially affected this category began to improve last year, which likely contributed to the easing of prices for some durable goods in recent months. However, there are factors that may throw sand in this gear going forward. The economic resiliency of Europe and a rebound in growth in China following the end of COVID restrictions will likely increase global demand for goods. And further improvement in global supply-chain disruptions has stalled over the past few months. For example, the New York Fed's Global Supply Chain Pressure Index remains elevated relative to pre-pandemic levels. The slowest gear to turn is the one that represents non-energy services. It's influenced by the balance of overall supply and demand, and it will take the longest to rotate at the right pace for low and stable inflation. One area where we are seeing signs of this gear turning is in shelter costs. After a sharp rise, we have seen a steep decline in the rate of increase in new lease rents. Assuming this trend continues, we should see a slowing of overall rent inflation during this year. That said, we have yet to see the gears turn for inflation of non-energy services excluding housing, which is still quite elevated, averaging 3-3/4 percent over the most recent six months. Tightening Monetary Policy Taking into account the different speeds the gears are moving, it is clear that overall demand remains well in excess of supply, and inflation is running far above our 2 percent target.