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Fed’s Waller sees ‘temporary’ inflation above 2% through 2022

Federal Reserve Governor Christopher Waller said, “We will not overreact to temporary overshoots of inflation.”
Federal Reserve Governor Christopher Waller said, “We will not overreact to temporary overshoots of inflation.”Andrew Harrer/Bloomberg

Increases in prices above the Federal Reserve’s 2 percent goal should be temporary but may last through 2022, Federal Reserve Governor Christopher Waller said Thursday.

“Despite the unexpectedly high CPI inflation report yesterday, the factors putting upward pressure on inflation are temporary, and an accommodative monetary policy continues to have an important role to play in supporting the recovery,” Waller said in prepared remarks to a virtual event hosted by the Global Interdependence Center on Thursday. “We will not overreact to temporary overshoots of inflation.”

Waller is the third Fed governor to speak this week, following comments by Lael Brainard on Tuesday and Vice Chair Richard Clarida on Wednesday, as Americans vex over rising prices.

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Officials will need to see several more months of strong economic data before being able to fully judge the strength of the recovery, Waller said, adding that the disappointing April jobs report was a “big surprise.”

“The May and June jobs report may reveal that April was an outlier, but we need to see that first before we start thinking about adjusting our policy stance,” he said.

Waller listed six things contributing to higher inflation readings: Base effects, or the comparison of prices this year to last year’s pandemic-depressed reading; higher energy costs; fiscal stimulus; spending of accumulated savings; supply bottlenecks; and increased demand for workers, which is driving up wages.

These will pressure prices to rise above the Fed’s 2 percent goal this year and next year, Waller said, but inflation will return to target after that.

His comments on the temporary nature of price spikes echo those made by his colleagues, who have said a pickup in inflation this year is likely to be transitory.

Fed officials have been trying to drive home the message that they see inflation spikes this year as transitory, in contrast with increasing Wall Street concern about runaway prices. A report Wednesday showed consumer prices rose in April by the most since 2009. Prices paid to US producers also expanded by more than forecast last month, increasing 0.6 percent from the prior month.

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