Significant Uncertainty How Long It Will Last

U.S. inflation is above the Federal Reserve’s 2-percent inflation target and pandemic-induced pressures such as supply chain disruptions may last longer than initially expected, Atlanta Federal Reserve Bank President Raphael Bostic said on Tuesday.

There is significant uncertainty about how long inflationary pressures will last, Bostic said, according to a Financial Times report. Inflationary pressures refer to supply and demand pressures that can cause prices to rise.

Bostic said he believes that many of the pricing trends caused by the pandemic will “unwind by themselves,” but he cautioned that some of the supply chain disruptions may last longer than initially expected, Reuters reported.

Jerome H. Powell, the Federal Reserve chairman, downplayed inflation risks earlier this year. Powell and Treasury Secretary Janet L. Yellen testified on March 24 before the House Financial Services Committee. “We do expect that inflation will move up over the course of this year,” Powell said at the time. “Our best view is that the effect on inflation will be neither particularly large nor persistent.”

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Pandemic-induced supply chain issues have stalled production globally, causing shortages that are helping to push prices up. Inflation is worrying businesses, consumers, economists and the Federal Reserve. As the pandemic continued, many consumers had money and wanted to spend it. Global supply chains hit bottlenecks — “because reopening isn’t smooth,” Mitchell Hartman wrote for Marketplace, “and prices spiked as buyers competed for limited supplies.”

Speaking at a virtual event organized by the Peterson Institute for International Economics, Bostic said, “Up to now, indicators do not suggest that long-run inflation expectations are dangerously untethered, but the episodic pressures could grind on long enough to unanchor expectations.”

Powell testified on Sept. 30 before the House Financial Services Committee. “High inflation will abate because … the factors that are causing it are temporary and tied to the pandemic and the reopening of the economy,” he said.

It’s just taking longer than many experts, including him, predicted, according to Marketplace.

Bostic told the Financial Times that the labor market has improved to allow the central bank to reduce or “taper” its $120 billion-a-month asset purchase program, implemented to protect the U.S. economy and financial markets from crisis during the pandemic. “I’d be comfortable starting in November,” Bostic said Tuesday. “I think that the progress has been made, and the sooner we get moving on that the better.”

The tapering process should begin soon, allowing space for the Fed to raise interest rates as soon as next year, if necessary, Bostic said.

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