Thank you, Raj, and thank you to the coalition for the invitation to be with you — virtually, at least. I don't want to take up too much of the time for our discussion but let me frame a few of the issues around inflation and the economic outlook.1

Last month we received a barrage of data that has challenged my view in January that the Federal Open Market Committee (FOMC) was making significant progress in moderating economic activity and reducing inflation. I'm not the only one whose outlook has shifted. Since the end of January, financial market participants have revised their outlooks in a way that has led them to mark up their expectations for the federal funds rate at the end of 2023 by about a half percentage point.

The shift in the data started with a bang on February 1, with a big increase in the number of job openings in December that reversed the gradual easing over several months in what is a key indicator of tightness in the labor market. Part of the FOMC's plan to lower inflation is reducing this excess tightness, which has been driving elevated wage growth and contributing to high inflation. The Job Openings and Labor Turnover Survey data can be noisy so, at times, there is a tendency to downplay large moves. But then on February 3, the job report for January showed a stunning 517,000 increase in employment and the unemployment rate moved down to a level not seen in over 50 years.2 These data indicated that, instead of loosening, the labor market was tightening.3 A little over a week later, on Valentine's Day, instead of a box of chocolates, we got the consumer price index (CPI) inflation report for January and revisions to 2022. By this measure, not only had inflation stopped declining in January, it also slowed a lot less in the second half of last year than previously reported.4 

Later that week, data on producer prices and last week's report on personal consumption expenditures (PCE) prices reinforced these two points. Retail sales for January also came in much stronger than expected, suggesting the economy was slowing less than it had appeared just a month earlier, a picture that was confirmed by data on personal spending, which represents almost 70 percent of gross domestic product. Continuing progress on inflation depends on lowering demand and moderating economic activity, and the retail sales and spending data suggest that progress on reducing aggregate demand may have stalled.