The Fed's inflation story, in charts
WASHINGTON (Oct 29) - Federal Reserve Chair Jerome Powell, in a high-profile speech in August, outlined the arguments for why the current bout of high U.S. inflation will be "transitory," and moderate on its own over time.
Since laying the case out, the evidence has been mixed. The U.S. central bank meets next week to update its views about the economy and monetary policy, and new data due to be released on Friday will be closely watched as officials balance their hope to support the economy with low interest rates for as long as possible against concerns inflation may be moving too fast.
Here"s how the inflation story has evolved:
HIGHER PRICES AHEAD
Fed officials knew early this year that inflation would rise as the global economy rebounded from the coronavirus pandemic. But where some economists felt record levels of federal spending would produce persistent price increases, most Fed officials expected a fleeting episode driven at first by simple math - the "base effects" of a weak economy returning to normal - along with some inevitable bumps in the reopening.
At their March 16-17 policy meeting, Fed officials marked up their inflation outlook for 2021. Powell, speaking in a news conference after the release of the policy statement and economic projections, said those "relatively modest increases in inflation ... will turn out to be a one-time sort of bulge ... There was a time when inflation went up, it would stay up. And that time is not now."
By September, however, inflation was running at twice the Fed"s 2% target, and officials" projections moved higher.
Powell"s own language shifted. "As the reopening continues, bottlenecks, hiring difficulties, and other constraints could again prove to be greater and longer lasting than anticipated, posing upside risks to inflation," he told reporters after the end of the central bank"s Sept. 21-22 policy meeting.
Some policymakers have pinpointed the end of the year as the moment when inflation needs to ease, or they"ll worry they got it wrong.
Powell and many others still think that will happen, but on a longer timetable than first anticipated. New September data on Friday will be parsed against the benchmarks Powell has laid out.
BROAD-BASED INCREASES?
"The spike in inflation is so far largely the product of a relatively narrow group of goods and services that have been directly affected by the pandemic and the reopening of the economy," Powell said in his August remarks.
He cited the fact that alternate inflation measures which toss out the strongest price influences remained moderate. But those measures have moved higher since he spoke, reflecting broader price increases.
Reuters
