we will get an update on personal consumption expenditures ( pce ) inflation next week, but based on 3 / 5 bis - central bankers'speeches data we received through august, the 12 - month percent change in pce inflation was 3. 5 percent and core pce inflation was 3. 9 percent. focusing on the annualized three - month change in inflation gives a better, albeit noisy, indicator of inflation dynamics. with this measure, core cpi was 3. 1 percent based on data from july through september. core pce, increased 2 percent based on june through august. across the categories that make up these price indexes, one finds that more than half of them had annualized monthly price increases of less than 3 percent. clearly, this is progress. and there are some factors that would be expected to put downward pressure on inflation in the coming months. monetary policy is restrictive. households are spending the excess saving accumulated during the pandemic and have growing levels of debt, which are likely to moderate spending growth. the increase in medium and longer - term interest rates over the past several months should weigh on both household and business spending. but, while core pce inflation over the last three months has declined to our 2 percent target, there are a couple of reasons to be concerned that this progress might not continue. first, in the latest cpi report, despite expectations of continued deceleration, housing services prices jumped from a monthly change of 0. 3 percent to 0. 6 percent. i have been concerned since may about a resurgence of housing services inflation and this number heightens my concern that housing services inflation has not slowed, and may not slow, to the rate needed to sustain a return to our 2 percent target. similarly, supercore inflation, which is core services excluding housing, has continued at a robust monthly rate of about 0. 5 percent the past two months. again, this reading is not at a level needed to make progress toward our goal and we need to watch and see if these numbers indicate that inflation is reaccelerating. the second reason to be concerned is that, while there is some basis for expecting that inflation will continue to fall, let me remind you, as i have done repeatedly, that we have seen a string of good inflation reports evaporate multiple times in the recent past. so i will be watching the next several reports for clearer indications that inflation is on a trajectory to 2 percent. what does that mean for monetary policy? i will

will be high now but lower in the next period. thus, we want to be careful and not pay too much attention to the specific month activity took place but instead average growth over a couple of quarters to get a clearer picture of the underlying strength of the economy. to see this point more clearly, recall that at the start of this year, personal consumption expenditures increased dramatically in the first quarter but subsequently grew less rapidly in q2 of 2023. a similar dynamic may be playing out now. on the other hand, if the third quarter data represents the beginning of persistently stronger demand, then we can expect that strength to show up in the fourth - quarter data, including by putting upward pressure on prices, which could have ramifications for upcoming decisions on monetary policy. in thinking about these two possibilities, let me tell you how i view two key components of gdp growth this year. consumer spending, which represents nearly 70 percent of gdp, has been quite strong thus far in 2023. while household spending has been volatile, smoothing it out over the past several quarters indicates underlying momentum. yesterday's september retail sales data indicated continued strong spending. the solid spending in the face of tightened monetary policy suggests consumption is likely supported by households'strong balance sheets as well as confidence in future 2 / 5 bis - central bankers'speeches labor income. i will be watching the spending data carefully, including those that hint at a slowdown. though hard to measure, it seems that households are drawing down their liquid assets. some other data supporting a slowing include more use of credit cards this year and a return of delinquency rates for consumer loans, which plunged over the course of the pandemic, to essentially their pre - pandemic levels. 2 also, as i mentioned earlier, financial conditions have tightened considerably since july. of course, i have been waiting a while for tightening financial conditions to cause a significant slowing of spending, and i have been consistently surprised at the resilience of consumer spending. so i will be patient in waiting for the data to document how spending evolves. another component of gdp that i'll be watching is investment in non - residential structures. manufacturing investment boosted real gdp growth in the first half of the year, partly driven by a surge in the construction of semiconductor and electric battery factories that began before new government subsidies were enacted and driven higher by that legislation. recent data suggests this spending is leveling off at a new, higher level : construction spending growth