While members of the Federal Reserve spoke publicly this week about movements associated with inflation and data that’s indicating them, ADESA chief economist Tom Kontos was a little more hesitant when giving his assessment about inflation to Cherokee Media Group.

And Kontos leveraged the used-car market to explain his reasoning.

“Though there has been a slowdown in inflation, I believe the inflation dragon has not been slain,” Kontos told Cherokee Media Group via email. “A contributing factor to lower inflation in recent months that is very ‘close to home’ is the softening in used-vehicle values we’ve seen at the wholesale and retail levels in our industry.

“This ‘correction’ from used-vehicle prices that were inordinately high has begun to slow down, as used vehicle prices have returned to more normal levels of depreciation, seasonality and relative to new vehicle prices,” Kontos continued. “So, this contributing factor to further reductions in overall inflation will be largely absent going forward. I’m also concerned about energy prices and the role they may play in keeping upward pressure on costs and therefore inflation.

“These are among the reasons that I am bearish about inflation,” Kontos went on to say. “Still, I realize there will be pressure on the Fed to execute one or more rate cuts by year-end if headline inflation statistics continue to seem benign and employment/unemployment statistics start to raise further concerns about the continued feasibility of a soft landing.”

The arrival of that “soft landing” along with a rate cut when the Fed has its next opportunity at the end of July was attendees wanted to hear on Monday when chair Jerome Powell participated in a fireside chat at an event hosted by the Economic Club of Washington, D.C.

“I’m not going to be sending any signals one way or the other on any particular meeting, so just to ruin the fun right at the beginning,” Powell joked when the opening question from David Rubenstein of the Caryle Group focused on when the Fed would make a rate cut for the first time in almost four years.

Rather, Powell recapped information the Fed has received in recent times.

“I’m going take that as a great opportunity to talk a little bit about the economy and then talk about where that leaves us with policy. I would just start by saying that the U.S. economy has performed really remarkably well over the last couple of years. Last year was a year in which the economy grew well above 3%. The labor market remained very strong, unemployment remained very low and inflation came down at quite a sharp pace, particularly in the second half of the year,” Powell told the Economic Club.

“This year, we had expected the economy to slow a bit gradually, the labor market to continue to gradually cool off after being overheated a couple of years ago and inflation to continue to make progress. That is basically what has happened,” he continued. “The economy is growing now at about 1.5% in the first half of the year. Most forecasters have about a 2% growth rate for the full year. The labor market again has moved into better and better balance to the point where I think you can now say it’s essentially no tighter than it was in 2019 before the pandemic. Remember that the labor market of 2019 was a very strong labor market. We’re back to that place no longer overheated on inflation.

“What we said is that we didn’t think it would be appropriate to begin to loosen policy until we had greater confidence that inflation was moving sustainably down to 2%. We’ve been waiting on that and I would say we didn’t gain any additional confidence in the first quarter, but the three readings in the second quarter including the one from last week do add somewhat to confidence,” Powell went on to say.

And being that the event happened within a short distance of the White House and Capitol Hill, it didn’t take long for politics to enter the financial policymaking conversation. Powell tried to snuff out that thought quickly.

“We’re going to make these decisions, meeting by meeting and we’re going to make them on the basis of the data as they come in the evolving data, the evolving outlook and also the balance of risks,” Powell said.

“Our undertaking at all times is that we’ll make our decisions based on the incoming data, the evolving outlook, balance of risks and only on that. We don’t take political considerations into account. We don’t put up a political filter on our decisions. It’s hard enough to make these decisions based on the appropriate factors. If you’re going to add a whole different filter in an area where we’re not experts, it’s not going to improve the quality of our decisions,” Powell continued.

“And it’s also not the orders we have from Congress. Our orders from Congress are to use our tools to foster maximum employment and price stability and to do so without political considerations. That’s what we’re always going to do. If you look at the modern record, that is what we do. We don’t think about election cycles or anything that’s political,” he went on to say.

More insight about data the Fed obtains

At another Washington, D.C. public appearance, Fed governor Adriana Kugler gave a keynote speech during the 21st annual Economic Measurement Seminar orchestrated by National Association for Business Economics Foundation.

Kugler began by noting that she was “pleased to be speaking at a conference covering an issue that is close to my heart.” She then touched on an array of challenges that can make assembling and understanding economic data a convoluted process.

“The truth is that it is not just the Fed that needs data. Consumers, businesses, investors, and others have access to more information than ever before when making decisions. It is incumbent on economists, private- and public-sector data collectors, and others to ensure that available data are carefully collected, accurately measured, and clearly presented, and that data collection and measurement efforts are further enhanced and continue to improve,” Kugler said.

Kugler emphasized that her remarks were not directed at pitting government agencies against private operations in a data-driven clash. She acknowledged that traditional measurement approaches sometimes struggle to track rapidly changing economic developments and many statistical reports were created decades ago and may not be focused on newer or growing sectors of the economy.

Kugler emphasized how public and private entities can work in tandem.

“While these challenges in traditional data that I have described may take some time to be addressed, I am encouraged by the explosion in data produced by the private sector over the past decade or so that can greatly enhance our understanding of the economy,” Kugler said. “Such data give an opportunity to measure economic developments with greater timeliness, at a higher frequency, and with more granularity. That said, those data often face their own challenges, including issues with representativeness, the lack of methodological consistency, and a short time-series history. Nevertheless, such nontraditional data can be helpful, especially when used jointly with official statistics to which these new sources can be benchmarked.

And like Powell, Kugler reiterated how the Fed will approach its decision making at the end of this month, its remaining meetings of 2024 and beyond.

“I want to again stress two things. First, the United States has world-class statistical agencies that have both a long history of rigorously constructing government data sources and adapting and combining information from private-sector with official sources. And, second, private-sector data will continue to be useful for providing granularity, timeliness, and frequency advantages that can complement official statistics, so long as data users are appropriately cautious,” Kugler said.

“Despite the many challenges, the future of economic measurement is bright. The statistical agencies have already proven their ability to innovate and adapt, even under tight resource constraints. And the wealth of private-sector data sources will only expand in the future. When I form my economic outlook and policy assessments, my approach is to watch a wide range of indicators, both official and unofficial, with a focus on the strengths and weaknesses of each,” she continued.

“All the data I carefully examine in my current role allow me to better understand where the economy stands. My colleagues on the FOMC and I make determinations on the policy actions that will be most appropriate for achieving our dual mandate, and so I would like to briefly share my views on how I see the economy evolving and how I see appropriate monetary policy,” Kugler went on to say.