Fed’s Barkin sees higher inflation this year, but a reversal in 2022
Richmond Federal Reserve Chairman Thomas Barkin told CNBC on Monday that he sees inflationary pressures rising this year and that he plans to ease in 2022.
“I think we will see price pressure this year. You have a very strong demand situation, and you have supply constraints,” the central bank official said at a “Closing bell“interview.” When these things happen, you are definitely going to see price pressure. “
However, Barkin added that he expects these pressures to ease as economic dynamics change throughout the year and the economy returns to a more normal state.
“Inflation is a recurring phenomenon. Prices go up this year, prices go up next year,” Barkin said. “I think it’s fair to argue whether the combination of supply chain constraints and stimulus-induced price increases will actually come back next year.”
Inflation is an essential component of the Fed’s policy.
Central bank officials prefer it to hover around 2%, but they said they will tolerate a slightly higher level only in the interest of creating full inclusive employment. Until then, they say they will not increase interest rates until their goals are met.
The Fed’s favorite inflation index, the Basic Personal Consumption Expenditure Index, rose 1.8% year over year in March.
Barkin provided a guide on when he could change his mind and vote to tighten up his policy at least by lowering the monthly asset purchase rate. The Fed currently buying at least $ 120 billion worth of treasury bills and mortgage-backed securities every month, and investors are wondering when the central bank might start reduce its activity.
Barkin said he was looking specifically at the level of employment relative to the population, which is currently 57.8%. It was 61.1% in February 2020 just before the pandemic, and Barkin said a level around there would help represent “further substantial progress, “the benchmark that the Fed set itself before starting to adjust its policy.
The Ministry of Labor will announce the latest employment figure to the population on Friday when it publishes the April report on the non-farm payroll, which is expected to post a gain of 978,000 jobs.
“I would love to see that growth,” Barkin said. “Like I said about inflation, when we get there, we get there. But we haven’t got there yet.”
Despite fears that inflationary pressures may spread faster than they think, Fed officials have kept close ranks on their economic and political views.
Earlier in the afternoon, the Fed chairman Jerome Powell said: “We are not out of the woods yet, but I am happy to say that we are now making real progress.”
New York Fed Chairman John Williams echoed the remarks, saying “if you look out the window today the view is very different from what it was a year ago.” However, while “the economy is heading in the right direction, we still have a long way to go to achieve a solid and comprehensive economic recovery.”
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