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Fed officials say 'temporary' inflation surge may last longer than thought

Federal Reserve Board building is pictured in Washington, U.S., March 19, 2019. (Reuters photo)

The “temporary” inflation surge in the United States may last longer than anticipated, according to US Federal Reserve officials.

Inflation is already running hotter this year than anything the economy has experienced in years, but Fed Chairman Jerome Powell has said it will be “transitory.”

However, with growth increasing to an estimated 7% this year and inflation well over the Fed's 2% target, Atlanta Fed President Raphael Bostic said Wednesday that he expected interest rates will need to rise in late 2022.

"Given the upside surprise in recent data points I pulled forward my projection," Bostic said, placing him among seven Fed policymakers who last week predicted the overnight policy rate may have to lift from the current near zero level sometime next year.

That marked a decisive shift from the end of 2020, when 12 Fed policymakers thought that crisis levels of interest rates would need to remain in place into 2024.

Bostic and Fed Governor Michelle Bowman said although they expect recent price increases to prove temporary, they also feel it may take longer than thought for them to fade.

"Temporary is going to be a little longer than we expected initially ... Rather than it being two to three months it may be six to nine months," Bostic said in an interview on National Public Radio's "Morning Edition."

On Monday, two other Federal Reserve officials said they see high inflation persisting in 2022 above the central bank’s 2% target and at a stronger rate than many of their colleagues project.

St. Louis Fed President James Bullard said he expects the core inflation rate next year to remain at a higher 2.4% rate.

And Dallas Fed President Rob Kaplan predicted that his regional bank’s alternative inflation measure, the trimmed mean PCE rate, would increase to 2.4% rate in 2022. The trimmed mean does not include the most extreme price changes in a month.

“Inflation pressures will bleed out into a broader range of items, and will persist through 2022,” Kaplan said.


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