##s demand, assuming that the economy is growing moderately ( at its potential ) and unemployment is roughly where it is now. however, my base case for july depends on incoming data. we have important data releases on retail sales and housing coming in before the july meeting. if that data come in materially stronger than expected it would make me lean towards a larger hike at the july meeting to the extent it shows demand is not slowing down fast enough to get inflation down. based on what we know about inflation today, i expect that further increases in the target range will be needed to make monetary policy restrictive, but that will depend on economic data in the coming weeks and months. between the end of july and the fomc ’ s september meeting, we will get two employment and cpi reports with data for july and august. i will be looking for signs that inflation has started its move down toward our 2 percent target on a sustained basis. i anticipate a decline in inflation will come as actual and anticipated hikes by the fomc cool demand for products and labor, which will help demand and supply come into a better balance. the decline in the rate of inflation will also be assisted by continued improvement in goods supply bottlenecks, which is occurring in some sectors, and an increase in labor force participation, which is still significantly lower than it was before the pandemic. i hope these supply recoveries happen, but my expectations for - 9policy don ’ t rely on it. i expect rate increases will continue after july at a pace that is dependent on the incoming data. after the july meeting, further increases will be restricting demand. looking further in the future, i will need to see how the tightening this year is affecting the economy and bringing inflation down toward our 2 percent target. based on my forecast for the economy, i expect monetary policy to be restrictive until there has been a sustained reduction in core personal consumption expenditure ( pce ) inflation, which excludes food and energy. food and energy prices tend to be volatile, so focusing on core pce inflation is a good guide to inflation pressures in the near and medium term. importantly, as futures prices for commodities — food, energy, raw materials — have declined recently, i am expecting total pce inflation to decline in coming months. but until i see a significant moderation in core prices, i support further rate hikes. in talking about where monetary policy is headed, it is helpful to get a fix on

that was driven by excess saving, significant fiscal stimulus, and accommodative monetary policy also has contributed to the high inflation we are now experiencing. there is some research estimating how much of this inflation - 6came from supply problems and how much from high demand. 7 the main point is that both played a large part in driving the inflation that we have seen over the past year. but the causes of inflation don ’ t affect my approach to policy because in writing the fomc ’ s mandate, congress did not say “ your goal is price stability unless inflation is caused by supply shocks, in which case you are off the hook. ” we want to reduce excessive inflation, whatever the source, in part because whether it comes from supply or demand, high inflation can push up longer - run inflation expectations and thus affect spending and pricing decisions in the near term. these decisions can then push up prices even more and make inflation harder to get under control. i pay attention to both surveys of the public ’ s inflation expectations and measures of inflation expectations derived from trading of inflation - indexed securities. i prefer the latter market - based measures, which are down from recent peaks but still elevated. the board staff combines various surveys and market - based measures in our index of common inflation expectations, which has moved up slightly in recent months after being flat for a long time. we need to avoid expectations rising so much that they become a factor that drives inflation higher. the path of monetary policy so, based on persistently high inflation and the very tight labor market that i have described, let ’ s talk about the implications for monetary policy. since march, the fomc a recent paper estimates that two - thirds of u. s. inflation is demand driven, while one - third is due to supply disturbances ; see julian di giovanni, sebnem kalemli - ozcan, alvaro silva, and muhammed yildirim ( 2022 ), “ global supply chain pressures, international trade, and inflation, ” paper presented at the ecb forum on central banking 2022, sintra, portugal, june 27 – 29, https : / / www. ecb. europa. eu / pub / conferences / ecbforum / shared / pdf / 2022 / kalemli - oezcan _ paper. pdf. also see adam hale shapiro ( 2022 ), “ how much do supply and demand drive inflation? ” frbsf economic letter 2022 - 15