christopher j waller : the economic outlook and a word of caution on inflation speech by mr christopher j waller, member of the board of governors of the federal reserve system, at the 59th annual economic forecast luncheon, phoenix, arizona, 16 november 2022. * * * thank you, dean kadan, and thank you for the opportunity to speak today about the outlook for the u. s. economy and the implications for the federal reserve's ongoing fight to reduce inflation. i will begin with some comments on the overall outlook for economic growth and then try to explain how tighter monetary policy this year is intended to dampen demand and put downward pressure on inflation. one way is by influencing the labor market, so next i will give an update about labor market conditions and how i expect them to evolve. i'll then turn to the outlook for inflation, where we saw moderation in some measures in october, but to a level that remains unacceptably high. i'll finish up with how i expect monetary policy will evolve in the coming months to reduce inflation and return it to the federal open market committee's ( fomc ) 2 percent goal. economic growth in the united states has slowed significantly in 2022, and i expect that slow growth to continue into next year. after shrinking slightly in the first half of this year, real gross domestic product rebounded in the third quarter to a 2. 6 percent annual growth rate. but all indications are that this was a temporary boost, and that weak growth has returned in the last quarter of this year and will persist into 2023. consumer and business spending has softened, amid deteriorating business sentiment in most sectors of the economy and near - record - low readings on surveys of consumer attitudes about the economy. there is no secret about why - inflation is very high, something people are reminded of every day when they see the prices of things they buy go up. on top of that, higher interest rates are raising borrowing costs for businesses and households. at any other time, i would be pretty unhappy about slowing growth, but not now. if you believe, as i do, that supply bottlenecks in the economy have mostly abated and that elevated inflation is primarily a function of high demand, then slowing down economic growth is absolutely necessary to bring inflation down to our 2 percent target. this slowing in activity is a sign that actions taken by the federal reserve this year to reduce inflation are working. let me take a few minutes to

the months ahead as an indicator of the direction of overall inflation. as i discussed in a recent speech, escalating rents have played a large role in driving up inflation this year, and because turnover of leases occurs only periodically, i expect 3 / 6 bis - central bankers'speeches measures of rents and the equivalent for homeowners will continue to increase significantly for at least several more months. 1 but i will be watching for signs of moderation. finally, i will be looking for a slowing in price increases in non - housing services, which have been quite robust in recent months and running at about twice their pre - pandemic level. as i said a moment ago, the inflation outlook for this sector will partly depend on the growth of wages. i will be looking closely for continued slowing in wage growth back to a more sustainable rate. given that medium - and longer - term inflation expectations remain stable, an indication that investors and consumers retain confidence in the fed's commitment and ability to achieve its inflation goal, i believe we can expect wage growth to slow. so, the recent cpi report is a positive development, but i'll need to see further progress. like many others, i hope this report is the beginning of a meaningful and persistent decline in inflation. but policymakers cannot act based on hope. i will not be head - faked by one report and will continue to watch the data between now and the december fomc meeting before deciding on the next step for policy. now let me turn to the implications of this outlook for monetary policy. since my last outlook speech in october, we have gotten some additional data that reinforces my sense that the labor market may be loosening, and that inflation pressure may be easing. but as i said a moment ago, this hasn't been sufficient to significantly alter my outlook or my view of appropriate monetary policy. achieving the fomc's dual mandate of maximum employment and price stability is still a one - sided campaign. with the labor market still strong and extremely tight, the committee does not face a trade - off between employment and inflation. inflation has been running significantly above our objective for more than a year, so monetary policy can and must be used aggressively to reduce it. to pursue that goal, the federal reserve has been aggressive. in nine months, we have raised the target range for the federal funds rate from near zero to 3 - 3 / 4 to 4 percent, a historically rapid pace of increases. in