Inflation will take time to reach Fed’s 2% target, Richmond Fed’s Barkin says
Petr Vdovkin
Some economic dislocations caused by the pandemic “are enduring” and that means it will take time to get inflation down to the Federal Reserve’s 2% objective, Richmond Fed President Thomas Barkin said Friday in a speech at the Stanford Institute for Economic Policy Research.
“Over a trillion in excess savings are still funding consumption, as we are continuing fiscal outlays like the infrastructure bill,” he said. “New auto inventories and houses for sale remain near historic lows, supporting prices in those sectors. Supply chain challenges remain, for example, in switchgears and cabinets. The labor market remains historically tight.”
With inflation easing from its highs of mid-2022, inflation expectations have remained well anchored on average. But “there’s been enough movement under the surface to warrant caution,” he said. The one-year median expected inflation rate fell to 4.1% in its most recent reading from the pandemic high of 5.4%. However, the range of responses has increased. “By one measure, that spread is at levels last seen in 1982.”
Inflation is likely past its peak, he said. “But I think it will take time to return to target, and, as a consequence, believe we still have work to do.”
Barkin repeated that the Fed has indicated it will raise rates more this year. And the policymakers’ projections has “made clear that we don’t anticipate rate cuts this year.” He didn’t specify how much farther he expects rates to rise. Currently, the federal funds rate stands at 4.50%-4.75%.
He concluded: “We would all like inflation to fall quickly back to target. I am confident it will in time but doubtful the process will be quick.”
Earlier on Friday, the Federal Reserves Semi-Annual Monetary Policy Report said inflation remains too high and financial risks are little changed.
