MNI BRIEF: Quarles Says Fed Trying to Avoid Inflation Headfake

The Fed's Vice Chair for regulation Randal Quarles Wednesday told Congress he does see above-normal inflationary pressures that could last a year, adding that policy should remain easy to avoid throttling the economy back too soon and unnecessarily cut off growth prospects.

"I don't think actually that it would be good for the industries that we want to see thriving as the recovery continues for us to close off that recovery prematurely, trying to stay ahead of inflation when again our best estimate is that we are not behind," said Quarles in a question-and-and-answer session. "Our experience over the course of the last decade coming out of the financial crisis is that a couple of times we thought we saw [inflation] -- wanted to stay ahead of inflationary pressures, and we increased interest rates. It was premature."

While it is not expected that inflation expectations would come unanchored, it is a possibility, Quarles said, and "if it were to happen, that a change in expectations lead to a more durable inflationary environment, then the Fed has the tools to address it." Current and former Fed officials have told MNI the Fed could reevaluate maximum employment goals and speed up tightening if a burst of inflation proves persistent or pushes up expectations substantially further.