references an annual inflation rate of 2 percent as most consistent with our price - stability goal over the longer run. the fed pursues its monetary policy goals using a variety of tools, but the main policy tool is the federal funds rate, a key interest rate for overnight borrowing by commercial banks that influences other interest rates throughout the economy. lower interest rates tend to stimulate demand — for housing, cars and other durable goods, and business investment, for example — which boosts economic activity and has the potential to push up inflation. higher interest rates tend to slow the economy and tend to push inflation down. in normal times, monetary policy decisions are made eight times each year through votes of members of the federal open market committee ( fomc ). 2 in preparation for each meeting, the fomc participants analyze the latest economic data and assess where the economy stands relative to our two mandated goals. and, because monetary policy decisions take some time to flow through to, or have their full effect on, the economy, fomc participants must form a view about how they think the economy will evolve in the coming months and years. in addition to understanding where the economy is at any given point in time, making a judgment about where it is headed is also crucial to monetary policy. 1 / 6 bis central bankers'speeches as i have learned in my nearly three years and almost 20 meetings as an fomc member, economic forecasting is challenging, to say the least. despite all of the data and economic models at our disposal, the economy is exceedingly complex, the product of countless decisions made every day by human beings, who have varied goals and motives. economic data, sometimes received with a considerable time lag, can give us only a rough, backward - looking picture of the economy, and judging where the economy is headed in the future is even more difficult. even the most accurate forecasts about the economy are often wrong, simply because of the uncertainty that is inherent in the task of interpreting and predicting future economic conditions. yet our responsibility is to do just that — make predictions about how economic activity will evolve, and act on those forecasts in real time, to ensure that monetary policy can help support a strong economy. as part of this process, fomc members also consider the different ways that our outlook may be wrong. we consider a number of alternative scenarios for the future and try to manage the relative risks of a policy decision if the future does not turn out as expected. i

for release on delivery 1 : 45 p. m. est ( 12 : 45 cst ) february 8, 2023 the inflation rate for necessities : a look at food, energy and shelter inflation remarks by christopher j. waller member board of governors of the federal reserve system at 2023 arkansas state university agribusiness conference jonesboro, arkansas february 8, 2023 thank you, bert, and thank you for the opportunity to talk about where the economy is heading, what the federal reserve is doing to get inflation back down to our 2 percent goal, and how all that is likely to affect american agriculture. 1 the big picture is that the u. s. economy is adjusting well so far to the higher interest rates that are necessary to rein in inflation. but inflation remains quite elevated, and so more needs to be done. although economic activity slowed in 2022, i expect the fed will need to keep a tight stance of monetary policy for some time to slow activity further in 2023. that is what i believe is needed to bring demand and supply into better alignment and lower inflation toward the federal open market committee ’ s ( fomc ) 2 percent target. some believe that inflation will come down quite quickly this year. that would be a welcome outcome. but i ’ m not seeing signals of this quick decline in the economic data, and i am prepared for a longer fight to get inflation down to our target. so, what is my take on the recent data? it looks like the economy grew at a solid pace in the final quarter of the year, the labor market remained tight, and inflation continued to retreat. after adjusting for inflation, personal consumption grew at around a 2 percent rate, though it contracted in the last two months of the year amid some pretty significant headwinds. one of those headwinds was high inflation, including for food and agricultural products. after accounting for inflation, spending on food consumed at home fell in 2022 after rising strongly in 2020 and 2021, the effect of both large price increases over i am grateful to katia peneva for assistance in preparing these remarks. these remarks represent my own views, which do not necessarily represent those of my colleagues on the federal reserve board and the federal open market committee. - 2the past year and the normalization of spending on groceries, which surged when people stayed home during the pandemic and reversed when they returned to restaurants. looking forward, i expect personal consumption will grow modestly and price increases