Fed's Waller Says Inflation Jump Likely Temporary -- Update
May 13 2021 - 5:08PM
Dow Jones News
By Paul Kiernan
WASHINGTON -- The U.S. economy is "going gangbusters," but the
Federal Reserve needs to see several more months of data on jobs
and inflation before determining when to begin scaling back its
easy-money policies, a central banker said.
Over the past week, official data have shown April job creation
falling far short of economists' forecasts, evidence of a shortage
of available workers, and consumer prices rising much faster than
expected, Fed governor Christopher Waller said Thursday. But he
called for central bankers to remain patient.
"The May and June jobs report may reveal that April was an
outlier, but we need to see that first before we start thinking
about adjusting our policy stance," Mr. Waller said in a speech.
"We also need to see if the unusually high price pressures we saw
in the April CPI [consumer-price index] report will persist in the
months ahead."
Since last year, the Fed has held interest rates near zero and
purchased $120 billion of bonds each month to support the economy's
recovery from the pandemic-induced recession. Most Fed officials
said in March that they expected to leave rates on hold through
2023. Policy makers plan to continue the current rate of bond
purchases until the economy makes "substantial further
progress."
Data released Wednesday showed the consumer-price index surged
4.2% in April from a year earlier, prompting market participants to
bet that the Fed will start raising rates sooner than officials
expect.
Fed officials say the increase in inflation was likely driven by
temporary factors related to the pandemic, including massive fiscal
stimulus, supply-chain bottlenecks and a surge in demand as the
economy reopens. So-called calendar effects also played a role as
low inflation in April 2020, when much of the economy was shut
down, dropped out of the 12-month price measure.
Similarly, Mr. Waller said, last week's lukewarm jobs report
reflects a temporary shortage of workers rather than a slowdown in
the labor market. Fear of Covid-19, enhanced unemployment benefits,
child-care issues and early retirements have caused some people to
remain out of the labor force even as employers' demand for workers
has surged.
Those problems should ease, Mr. Waller said, as schools and
daycare providers reopen and pandemic unemployment programs
expire.
"The economy is ripping, it is going gangbusters," he said.
The critical question for inflation is how long it will run hot.
Mr. Waller said he expects prices are likely to rise between 2.25%
and 2.5% a year for the next two years, a scenario that would be
consistent with the Fed's target.
"The takeaway is that we need to see several more months of data
before we get a clear picture of whether we have made substantial
progress towards our dual-mandate goals," Mr. Waller said,
referring to the Fed's objectives of full employment and sustained
2% inflation.
Most Fed officials have resisted clearly defining the level of
inflation that would push them toward tightening monetary policy in
the absence of a fully recovered labor market.
Mr. Waller, however, laid down a personal marker.
"For me, if I were to see 4% inflation month in, month out,
month in, month out, I would get very concerned," he said.
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
May 13, 2021 16:53 ET (20:53 GMT)
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