Washington, D.C. – Federal Reserve policymaker John Smith delivered remarks on Friday, acknowledging the current state of the U.S. economy. During his speech at the Peterson Institute for International Economics, Smith stressed that the views expressed are solely his own and not those of the Federal Reserve System.
Smith stated that the U.S. economy witnessed unexpected growth in 2023, primarily driven by robust consumer spending. However, he cautioned that household balance sheets showed signs of weakening towards the end of the year, leading him to anticipate slower growth in spending and output for 2024. Despite this, he also highlighted a certain resilience in consumer spending, which presents an important upside risk to his forecast.
In terms of the labor market, Smith noted a narrowing imbalance between labor demand and supply. While the demand for labor cooled, there was an improvement in labor supply. Despite this, the job market remained tight, with job openings remaining significantly above pre-pandemic levels. He stressed that the unemployment rate in January was at a historically low level of 3.7 percent.
Discussing the inflation outlook, Smith emphasized the progress made in 2023 towards the Federal Open Market Committee’s 2 percent inflation objective. He attributed this progress to the unwinding of pandemic-related supply and demand distortions in the economy, coupled with restrictive monetary policy.
Furthermore, Smith offered a longer-term perspective on past monetary policy cycles, suggesting that the current situation is likely closer to the norm during these episodes, with PCE inflation closer to 2 percent than 4 percent. He highlighted the need for policymakers to remain vigilant and nimble, citing past instances when adverse shocks hit the economy, necessitating a different course of policy easing.
Amid these considerations, Smith remains cautiously optimistic about progress on inflation and emphasized the need to review incoming data to assess the economic outlook and associated risks. He identified three key risks going forward, including the resilience of consumer spending, potential weakening in employment, and the ongoing geopolitical risks.
In conclusion, Smith underscored the importance of learning from past episodes, with a recognition that uncertainty is always present in the economic landscape. If the economy evolves as expected, he anticipates the need to dial back policy restraint later this year, but acknowledged that each period presents its own unique challenges and requires a flexible approach to policy decision-making.