Fed Vice Chairman Downplays Relevance of Rising Inflation

(Bloomberg) – US Federal Reserve Vice Chairman Richard Clarida acknowledged his surprise at the rise in consumer prices in April, but said the rise in inflation would likely be largely transitory.

“Year-on-year inflation readings have risen recently and are likely to rise a bit more before moderating later this year,” he told a meeting of the National Association for Business Economics on Wednesday. However, “I expect inflation to return to our longer-term target of 2% in 2022 and 2023, or perhaps slightly exceed it.”

U.S. consumer prices posted their biggest rise since 2009 in April, taking the year-over-year increase to 4.2% amid a record rise in used car costs, the Department of Job. The news sent prices down for stocks and bonds.

Calling the April figures as individual “data,” Clarida said inflation was being driven by base effects – current price levels are high compared to weak readings a year ago, when the economy was practically closed. to contain covid-19– and some supply bottlenecks.

“We have pent-up demand in the economy,” he said. “It could take a while for supply to meet demand.”

Clarida repeatedly noted that the Fed was prepared to act if inflation or inflationary expectations rose to undesirable levels.

No doubt

“If we saw evidence that there is a risk of a persistent upward trend in inflationary expectations, we would not hesitate to use our tools to offset it,” he said.

However, he suggested that the Fed is far from reducing the massive stimulus it is providing to the economy.

“The economy is still a long way from our targets, and it will likely take some time to make more substantial progress,” he said.

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The Fed is currently buying $ 120 billion in assets per month ($ 80 billion in Treasury securities and $ 40 billion in mortgage-backed debt) and has pledged to maintain that pace until further substantial progress is made toward its maximum employment targets. and average inflation of 2%.

Clarida was optimistic about the outlook for the economy, saying she expects it to “pick up momentum” this year.

But, like other forecasters, he said he had been surprised by last week’s news of a less-than-expected increase in US payrolls in April.

“The short-term outlook for the labor market appears to be more uncertain than the outlook for economic activity,” he said, adding that it may take some time to link workers to available jobs after the pandemic.

“This was an unprecedented impact,” he said. “We need to be humble and take lessons from the data.”

Original Note: Fed’s Clarida Plays Down Significance of Rising Inflation (2)

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