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Richmond Fed President Thomas Barkin said Thursday that he thinks U.S. inflation pressures are temporary but the central bank needs to to be careful and watch prices closely.
“I do believe we are in the middle of a temporary adjustment cycle during which workers will return to the workplace and schools open and fiscal payments expire and suppliers catch up with demand,” Barkin said in a virtual talk to the Raleigh Chamber.
“For those reasons, I expect our near-term inflation pressure to ease as we go into the fourth quarter,” Barkin said.
“Daily car rental prices are not going to be $400 forever, because more supply is going to come online,” he said.
“A great cure for high prices is well, high prices.”
The core consumer prices index, excluding volatile food and energy prices, has jumpted at an 8.3% annualized rate over the last three months. That’s a “big number,” Barkin said.
The key question for the Fed is whether businesses and consumers begin to expect higher annual price increases.
“I think the last 30 years of relative price stability has got to outweigh a few months of pressure, but one can never be too careful,” Barkin added.
“That is why the Fed has started the process of discussing normalization” of its policy stance, he said.
Barkin is a voting member of the Fed’s interest-rate committee this year which voted last week to hold policy steady — continuing its program to buy $120 billion of bonds every month while holding its benchmark rate close to zero to support the economy.
During their deliberations, Fed officials agreed to begin to talk about when to slow down asset purchases, the first step toward taking the central bank’s foot off the gas. The majority of Fed officials don’t see any interest rate hikes until 2023.
The yield on the 10-year Treasury note
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moved down slightly on Thursday, despite what Barking called “a daily media drum-beat about higher prices.”
