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Top Fed official sees US inflation slowing as supply issues resolve

WASHINGTON (AFP) – The wave of United States (US) price increases that have battered consumers in recent months should slow this year, as supply and transportation issues resolve, a top Federal Reserve official said.

New York Federal Reserve Bank President John Williams said he sees inflation falling to 2.5 per cent this year, but cautioned that the ongoing pandemic means any forecast faces high uncertainty.

Given the rapid recovery and high inflation, he said the Fed is “approaching a decision” on raising lending rates.

With inflation hitting its highest rate in nearly 40 years, the Fed already has begun to remove the massive stimulus pumped into the world’s largest economy during the pandemic to aid in the recovery. Many economists expect the Fed’s policy-setting Federal Open Market Committee to raise the benchmark interest rate off zero in March, with three or even four hikes possible this year.

But Williams said the date will depend on how the recovery progresses. “With growth slowing and supply constraints gradually being resolved, I expect inflation to drop to around 2.5 per cent this year, much closer to the FOMC’s two per cent longer-run goal,” he said in a speech to the Council on Foreign Relations.

“And looking further ahead, I expect inflation to get close to two per cent in 2023,” he added.

“Given the clear signs of a very strong labour market,” including the rapid drop in the unemployment rate, the Fed is nearing the time to start getting the policy interest rate “back to more normal levels”, Williams said.

However, “the timing of such decisions will be based on a careful consideration of a wide range of data and information.”

The main factors behind rising prices are high demand and the supply chain snarls due in part to the lockdowns in Asia that have hampered production of key material.

But Williams acknowledged that “elevated prices have real life consequences for so many, particularly for people who are struggling to cover the rising costs of food, housing and transportation”.

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