WASHINGTON–Federal Reserve officials, who have consistently spoken with one voice throughout the pandemic regarding monetary policy, are now “less in sync,” according to one new analysis.
“Central bankers are increasingly divided over how to think about and respond to emerging risks after months of rising asset values and faster-than-expected price increases,” reported the New York Times. “While their political counterparts in the White House have been more unified in maintaining that the recent jump in price gains will fade as the economy gets past a reopening burst, Washington as a whole is wrestling with how to approach policy at a moment of intense uncertainty.”
The Times noted the Fed’s top officials, including Chair Jerome H. Powell, acknowledge that a lasting period of uncomfortably high inflation is a possibility. But as CUToday.info has reported, those same officials have also said it is more likely that recent price increases, which have come as the economy reopens, will fade.
Specific Concerns
However, now, other officials, including Federal Reserve Bank of St. Louis President James Bullard, have begun voicing more specific concerns that the pickup in prices might persist and have suggested that the Fed may need to slow its support for the economy more quickly as a result.
While persistent inflation has been downplayed to date, “it is becoming a central feature of economic policy debates as prices rise for used cars, airline tickets and restaurant meals,” the Times analysis noted, and for the Fed the risk that some of the current increases could last is helping to drive the discussion about how soon and how quickly officials should slow down their enormous government-backed bond-buying program — the first step in the central bank’s plan to reduce its emergency support for the economy.
“Fed officials have said for months that they want to achieve ‘substantial further progress’ toward their goals of full employment and stable inflation before slowing the purchases, and they are just beginning to discuss a plan for that so-called taper,” the report stated. “They are now wrestling with the reality that the nation is still missing 7.6 million jobs, while the housing market is booming and prices have moved up faster than expected, prompting a range of views to surface in public and private.
‘Bubbling Debate’
“The bubbling debate reinforces that the central bank’s easy money policies won’t last forever and sends a signal to markets that officials are closely attuned to inflationary pressures,” the Times added.
“I see the debate and disagreement as the Fed at its best,” Federal Reserve Bank of Dallas President Robert S. Kaplan, who is one of the people pushing for the Fed to soon begin to pull back support, told the Times. “In a situation this complex and this dynamic, if I weren’t seeing debate and disagreement, and there was unanimity, it would make me nervous.”
If what the Times called “the reopening weirdness” related to prices lasts long enough, it could cause businesses and consumers to anticipate higher inflation permanently, and act accordingly.
‘Could Take Some Time’
“Should that happen, or if workers begin to negotiate higher wages to cover the pop in living costs, faster price gains could stick around,” the analysis stated.
Some Fed officials have said today’s price pressures are likely to ease with time but have not sounded confident that they will entirely disappear.
“These upward price pressures may ease as the bottlenecks are worked out, but it could take some time,” Michelle Bowman, one of the Fed’s Washington-based governors, stated in a recent speech.