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Temporary factors will push measured inflation higher this spring but the distortions won’t last long, said Boston Federal Reserve President Eric Rosengren.
“My view is that this acceleration in the rate of price increases is likely to prove temporary,” Rosengren said Wednesday in a webinar with Boston College.
“Toilet paper and Clorox were in short supply at the outset of the pandemic, but manufacturers eventually increased supply, and those items are no longer scarce. Many of the factors raising prices this spring are also likely to be similarly short-lived,” Rosengren said.
Rosengren cautioned that it is too soon to know whether trend inflation will rise as the economy strongly recovers in 2022 but the most likely outcome is inflation trending close to the Fed’s 2% long-run target.
Economists are divided on the question of what the trend rate of inflation will be the 2022, with some economists seeing inflation above the Fed’s 2% target, even though the consensus is 2%.
“This would not be a situation where I would be at all alarmed if these forecasters have it about right,” he said.
Rosengren said he would be watching the data carefully and said inflation could be stronger than expected. He said he would be watching the employment cost index to see if wages move higher. That would be a warning sign that the price increases he expects to be temporary might be higher than anticipated.
Earlier on Wednesday, Chicago Fed President Charles Evans said he thought the chances of persistently higher inflation were remote.
The Fed is buying $120 billion of assets each month, and holding short term interest rates close to zero, in order to provide support for the economy.
Both Rosengren and Evans gave no sign they would want to discuss tapering the asset purchases, which would be the first step in the central bank taking its foot off the gas pedal in support for the economy.
Dallas Fed President Robert Kaplan, in an interview with MarketWatch, has called for a discussion about slowing down the Fed’s asset purchases. He said his contacts think inflation bottlenecks might last longer than previously thought.
Read: Kaplan says inflation surge may not be temporary
Rosengren said the Fed is going to place emphasis on realized data rather than forecasts before taking policy actions.
“This implies that current policy will remain accommodative until the labor market can consistently help deliver on the Fed’s 2% inflation goal,” he said.
The S&P 500 index
SPX,
rebounded on Wednesday rising after closing down 0.7% in the prior day’s session.
