US inflation pressures likely to ease in 2022: Fed

24 May, 2021 12:00 AM printer

HOUSTON: Factors pushing US inflation higher are likely to ebb at the start of 2022, said Federal Reserve Bank of San Francisco president Mary Daly.

“There’s just going to be a sequence of these temporary factors that are going to persist probably through the end of the year,” Ms Daly said Friday in an interview with Bloomberg News.

“They will start to roll off at the beginning of next year. How many of them will roll off or whether other bottlenecks will emerge as we start to get the economy back into shape and get back into recovery is hard to say.”

Ms Daly, a voter this year on monetary policy, said she expects inflation to remain elevated through the end of 2021 and that a variety of pressures are adding to price increases right now, including supply-chain constraints in shipping and semiconductor manufacturing and the so-called base effect of comparing this year’s prices to last year’s pandemic-induced declines, report agencies.

Fed officials last month held interest rates near zero and vowed to maintain their massive monthly asset purchases until achieving “substantial further progress” on employment and inflation. There’s a range of views among officials about when that test will be met.

Details of their April 27-28 meeting showed that a number of officials were open to discussing scaling back bond buying at upcoming meetings if the economy continued to make rapid progress.

Ms Daly said monetary policy is in a good place right now and that policy makers need to be patient in light of the more than 8 million people who are still unemployed compared with pre-pandemic levels. Despite some “frothy” spots in financial markets, overall they’re also in a good place, she said.

Some of Ms Daly’s colleagues on the Federal Open Market Committee, including Dallas Fed President Robert Kaplan and Philadelphia Fed President Patrick Harker, have said they think the Fed should start talking about tapering its bond purchases sooner rather than later. But Chair Jerome Powell has said it’s too early to think about removing some of the central bank’s accommodative policy.

“I don’t want to front run the committee discussions by coming down on any particular thing because we’re not in a place where that’s been decided,” Ms Daly said. “You would hear that first from the chair and he has signaled that we’re not ready to start talking about talking about these types of things.” The Fed is buying US$80 billion of Treasuries and US$40 billion of mortgage backed securities every month.