A recent burst of inflation could prove more long-lasting than expected as the surging U.S. economy faces widespread bottlenecks that have severely disrupted the global supply chain, a Federal Reserve official said on Thursday.
St. Louis Fed President James Bullard predicted that prices for most goods and services will continue to climb in 2021 and 2022 after companies were thrown off by the speed of the economic recovery from the pandemic and the wave of pent-up demand among consumers who are flush with cash.
"Those things I don't think are as easy to fix as some people think," Bullard said during an interview with FOX Business' Maria Bartiromo. "We're going to see continuing price pressure well into 2022."
Bullard's comments come as policymakers at the U.S. central bank grapple with how to handle conflicting economic data: While inflation is on the rise – in May, the government reported that consumer prices for goods and services rose 5% in May from a year prior, the fastest year-over-year jump since 2008 – job growth has been mostly lackluster. There are still some 9.3 million Americans out of work.
During their two-day, policy-setting meeting in June, Fed officials unanimously voted to hold interest rates near zero, where they have sat since March 2020, and committed to keep purchasing $120 billion in bonds each month.
But updated economic projections released by the Fed showed that officials expect to raise rates twice, to about 0.6%, by late 2023, in part due to heightened expectations for inflation.
"The risk here for us policymakers is that there's still upside risk to inflation," Bullard said. "Even though we're going to have higher inflation this year, it could even be higher than we anticipated, and it could be higher than we anticipated next year. We have to be ready for that situation."
The Fed gave no signs in June that it was imminently considering scaling back its aggressive bond-buying program, even though policymakers raised headline inflation expectations to 3.4% for 2021 – a full point higher than the March forecast. But Bullard suggested on Thursday that it was time for officials to "get moving" on the tapering discussion.
"The U.S. economy is really roaring forward coming out of this pandemic," he said. "We're getting bottleneck and inflation concerns, and I think we're going to have to be attentive to those concerns."
Longer-term projections show that Fed policymakers expect inflation to settle around 2% in the future. Although Chairman Jerome Powell has side price spikes "could turn out to be higher and more persistent than we expect," he's maintained that any inflation acceleration is temporary.