Kaplan And Bullard See Inflation Remaining Persistent Into 2022

Dallas Fed Kaplan and St Louis Fed Bullard talking inflation at an online event:

Kaplan on structural vs cyclical inflation:

• Suggests some wage issues could be structural / persistent (retirements, skill mismatches).
• On semiconductor shortages and other supply chain issues - some will resolve themselves in the next 6-12 months. Some will be more persistent driven by changes in the economy, including the energy transition (which will require raw materials, semiconductors, etc).
• Dallas Fed sees 2.4% PCE inflation next year (with risks to the upside) as individual price inflation bleeds into a wider range of categories. On the other hand the base effects may wear off.
• Kaplan notes there's a range of outcomes on inflation and that the Fed should be applying risk management approaches, in this case that means taking foot off the accelerator sooner rather than later.

Bullard says we're in a "new era" where inflation is above target and is expected to be above target in 2021.

• The question is how quickly will that dissipate, and does the FOMC have the right posture to do the risk management that Kaplan was talking about.
• StL also has a 2.4% inflation forecast next year. Notes FOMC SEP has >2% core PCE in 2021-23, which is consistent with new framework. The question is, what's the timeframe and magnitude of average inflation target - and that's a debate to have.