In recent months we've had some core PCE numbers that are higher than I would like to see sustained. But I like where we are on a year-over-year basis and I think the general anticipation (is) for those monthly numbers to settle back down in the second half of the year.

Housing prices, like other asset prices, are a relative price, and I don't see those as a direct driver of inflationary trends.

If you look at any one of those factors [rising energy prices, higher import prices, and increases in labor costs] you are able to deal with it without any issue.  But when you start seeing them combine, then I think you have to be even more sensitive to the kinds of inflation pressures that might be out there...And remember that that is in a context where we have had monetary policy very accommodative over the last several years.  That is being removed, but we have that effect that's being carried through that we have to be aware of.

The Fed’s inflation-fighting credibility may be somewhat more fragile over the next few years than it has been over the past few years.

Market confidence in the Federal Reserve’s ability and willingness to maintain a low trend rate of inflation has been a core characteristic of the Greenspan regime...Examination of current survey data and the spread between the yields on conventional and indexed Treasury bonds indicates that market confidence in continuing low inflation extends well beyond Greenspan’s tenure as Chairman. Institutionalizing market confidence in the Federal Reserve is a great accomplishment.

The inflation outlook is more favorable than it was a couple of months ago. I've been happy that the pass-through to core (prices) has been less than feared and the expectations embedded (in inflation-linked bonds) has subsided.

In my view the economy is generally healthy and should continue to experience good growth over the remainder of this year and into 2006.  My focus remains with the fact that, in an environment where monetary policy has been accommodative for some time, inflationary risks may begin to rise.

Taken individually, higher energy costs, increases in labor costs, and stronger import prices are not especially alarming.  Taken together, however, they suggest to me an environment where risks to inflation are increasingly on the upside, especially with an accommodative monetary policy.  Thus, going forward, I think it will be especially important to position US monetary policy so that it can respond if inflation pressures emerge and prevent these pressures, even if temporary, from affecting inflation expectations.

While an accommodative policy is quite appropriate when the economy is operating significantly below its potential, I am sure you would agree that the same policy could be highly inflationary if maintained as the economy approaches its potential.  Ideally, then, we would like to unwind policy accommodation in pace with the rebound in aggregate demand that moves the conomy back toward its potential.

I've been really pleased that the market based measures of inflation expectations have subsided in the last month or two. It is clear now that the whiff of softness [in growth] that we got in the spring was transitory and the inflation numbers have been better after an adverse bulge.

I also expect inflation to remain well contained in 2005, both overall and by core measures that exclude food and energy prices. My scenario of solid output growth, at or just slightly above the economy's long-run potential, and steady job gains, which gradually bring the labor market into better balance, is consistent with a relatively stable price environment.

The very continuation of the expansion, now in its fourth year, may lessen the competitive pressure on domestic producers and permit them to exert some pricing power.

I don't think we should stick our head in the sand and say that we don't have to worry or think about unit labor costs at this point.  It's one of those things we have to continue to watch very carefully and be sure that in addition to the other cost pressures we get, that we don't at some point begin to see labor cost pressures that would add to the inflationary pressures that I talked about.

The breakup of the Soviet Union and the integration of China and India into the global trading market...have permitted more of the world's lower-cost productive capacity to be tapped to satisfy global demands for goods and services.  Concurrently, greater integration of financial markets has meant that a larger share of the world's pool of savings is being deployed in cross-border financing of cost-reducing investments.  The enlargement of global markets for goods, services, and finance has contributed importantly to the favorable inflation performance that we are witnessing in so many countries.  That improved performance has doubtless contributed to lower inflation-related risk premiums, and the lowering of these premiums is reflected in significant declines in nominal and real-long-term rates.

The enlargement of global markets for goods, services, and finance has contributed importantly to the favorable inflation performance that we are witnessing in so many countries.