by Harry Wilmerding
Federal Reserve Vice Chairman Richard Clarida said he expects the recent spike in inflation to dissipate as supply and demand imbalances ease and that future price increases in 2022 would cause problems for the central bank.
“I do continue to judge that these imbalances are likely to dissipate over time as the labor market and global supply chains eventually adjust and, importantly, do so without putting persistent upward pressure on price inflation and wage gains adjusted for productivity,” Clarida said in remarks prepared for delivery on Monday.
Clarida also noted that the spike in inflation this year was significantly higher than the desired 2% rate and any further price increase would not result in policy success, according to the remarks.
“Realized PCE [personal consumption expenditures] inflation so far this year represents, to me, much more than a ‘moderate’ overshoot of our 2 percent longer-run inflation objective, and I would not consider a repeat performance next year a policy success,” Clarida said.
Regarding rate hikes, Clarida said he believes that inflation still remains a greater risk and economic conditions could justify a rate hike by the end of 2022.
Growing demand for goods, supply chain bottlenecks and labor shortages have triggered the consumer price index, a leading measurement for inflation, to grow 5.4% year-over-year as of October.
The Federal Reserve announced Wednesday it would begin scaling back its monthly bond purchases in November as inflation surges. The central bank will reduce its purchases by $15 billion each month from the current $120 billion.
“Inflation is elevated, largely reflecting factors that are expected to be transitory,” Fed officials wrote in a statement. “Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors.”
Meanwhile, Fed officials voted against raising rates from the current near-zero figure. Officials do not see rates increasing until the tapering ends around the targeted July 2022 date.
– – –