Which take on inflation prevails - risk-focused, watchful, or less fretful - will have implications for the economy. “You could see inflation coming in lower than expected,” he said last week. The one-off factors pushing up prices now, like a surge in car prices, could reverse once supply recovers, dragging down future price gains. Williams has said there is even a risk that inflation could slow. Powell said during congressional testimony on June 22. “A pretty substantial part - or perhaps all - of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy,” Mr. Williams, president of the Federal Reserve Bank of New York, have said it is possible that prices could stay higher, but they have also said there’s little evidence so far to suggest that they will. The Fed’s top leadership has offered a less alarmed take on the price trajectory. “These upward price pressures may ease as the bottlenecks are worked out, but it could take some time,” Michelle Bowman, one of the Fed’s Washington-based governors, said in a recent speech. Other Fed officials have said today’s price pressures are likely to ease with time, but have not sounded confident that they will entirely disappear. The Fed aims for 2 percent inflation as an average goal over time, without specifying the time frame. Bullard said in a presentation last week. “A new risk is that inflation may surprise still further to the upside as the reopening process continues, beyond the level necessary to simply make up for past misses to the low side,” Mr. Should that happen, or if workers begin to negotiate higher wages to cover the pop in living costs, faster price gains could stick around. Some prices that had previously shot up, like those for lumber, are already starting to moderate.īut if the reopening weirdness lasts long enough, it could cause businesses and consumers to anticipate higher inflation permanently, and act accordingly. Bottlenecks that have held up computer chip production and home-building should eventually fade.
Inflation has spiked because of statistical quirks, but also because consumer demand is outstripping supply as the economy reopens and families open their wallets for dinners out and long-delayed vacations.
But how they think about inflation after a string of strong recent price reports - and how they feel the Fed should react - varies. The central bank’s 18 policy officials roundly say that the economy’s path is extremely hard to predict as it reopens from a once-in-a-century pandemic. The bubbling debate reinforces that the central bank’s easy money policies won’t last forever, and sends a signal to markets that officials are closely attuned to inflationary pressures. They are now wrestling with the reality that the nation is still missing 7.6 million jobs while the housing market is booming and prices have moved up faster than expected, prompting a range of views to surface in public and private.
TAPER BURST FADE FULL
For the Fed, the risk that some of the current jump could last is helping to drive the discussion about how soon and how quickly officials should slow down their enormous government-backed bond-buying program - the first step in the central bank’s plan to reduce its emergency support for the economy.įed officials have said for months that they want to achieve “substantial further progress” toward their goals of full employment and stable inflation before slowing the purchases, and they are just beginning to discuss a plan for that so-called taper. Unwanted and persistent inflation seemed like a fringe possibility earlier this year, but it is becoming a central feature of economic policy debates as prices rise for used cars, airline tickets and restaurant meals. Louis, have voiced more pointed concern that the pickup in prices might persist and have suggested that the Fed may need to slow its support for the economy more quickly as a result. Other officials, like James Bullard, president of the Federal Reserve Bank of St. But they have said it is more likely that recent price increases, which have come as the economy reopens from its coronavirus slumber, will fade. Powell, acknowledge that a lasting period of uncomfortably high inflation is a possibility. The Fed’s top officials, including Chair Jerome H.
TAPER BURST FADE HOW TO
While their political counterparts in the White House have been more unified in maintaining that the recent jump in price gains will fade as the economy gets past a reopening burst, Washington as a whole is wrestling with how to approach policy at a moment of intense uncertainty. Central bankers are increasingly divided over how to think about and respond to emerging risks after months of rising asset values and faster-than-expected price increases.
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