Thomas Catenacci, DCNF
The Federal Reserve admitted Wednesday that inflation could increase quicker and for longer than the central bank has projected in recent months.
Inflation could turn out to be “higher and more persistent” than previously expected if supply constraints continue to plague many economic sectors as they are now, Federal Reserve Board Chairman Jerome Powell said during a press conference Wednesday. Fed officials including Powell have repeatedly stated that consumer price increases would be “transitory,” lasting 6-9 months, according to Forbes.
“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell said during the press conference.
“As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly because supply bottlenecks in some sectors have limited how quickly production can respond in the near term,” he continued.
Global supply chain shortages have continued to persist for several months as governments have reopened their economies and lifted coronavirus restrictions. For example, producers of materials required for building homes and cars have struggled to keep up with demand driving prices through the roof.
More than 60,000 Ford vehicles remain unfinished due to the semiconductor chip shortage, the American automaker’s Chief Financial Officer John Lawler said Wednesday.
But economists like former Treasury Secretary Lawrence Summers have blamed increased government spending on surging prices. The coronavirus relief package enacted in March cost taxpayers $1.9 trillion while President Joe Biden has proposed more than $6 trillion in additional spending.
“I think the Fed has been wrong for the last six months in its optimism that inflation will be transitory,” Summers said in a recent CNN interview. “I think it is still being too gradual in recognizing that error.”
Inflation increased 5.4% over the 12-month period ending in June, the quickest pace of price increases since 2008, according to recent Labor Department data.
On Wednesday, Powell insisted that if the Fed observed prices increasing to a level beyond its expectations over the next few months, it would take steps to prevent hyperinflation.
“If we saw signs that the path of inflation or longer term inflation expectations were moving materially and persistently beyond levels consistent with our goal, we’d be prepared to adjust the stance of policy,” Powell said.
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