WASHINGTON–The Federal Reserve’s Open Market Committee (FOMC) will begin two days of meetings today, and despite the increased discussion around inflation no action to boost rates is expected.
As CUToday.info has reported, Fed Chairman Jay Powell and members of the Biden Administration have said they believe price increases, even with inflation at its highest rate in 13 years, are temporary. The Consumer Price Index also jumped by 5.4% in the 12 months that ended in June 2021.
“The administration maintains that price gains will be temporary. But inside the White House, aides have in recent weeks concluded that strong increases could linger for a year or more, according to two administration officials,” noted the New York Times. “Policymakers still expect inflation to cool to more normal levels eventually, and markets have actually become more sanguine about the price outlook in recent weeks.”
Inflation Expected to Dissipate
Many economists, including inside the credit union community, have forecast that the current increases should level off as car supply picks up, consumer spending returns to more normal patterns, and companies rehire and expand capacity.
“We expected a pop in inflation like this,” Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, told CNBC. “Demand came back faster than supply, and there are these temporary bottlenecks. Right now, it’s really — remain steady in the boat, don’t read too much signal into any month of data.”
One issue likely to be discussed during the FOMC meeting: Whether higher wages begin to pass into inflation more broadly is critical to the longer-term price outlook.
“Rising pay and prices can feed on one another in an upward spiral, as workers bargain for higher pay to cover their climbing cost of living, and employers pass higher labor costs along to shoppers,” the Times noted.
The Fed has said it will continue to maintain its 2% target for annual price gains on average over time, a goal it defines using a different index.