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MNI POLICY: Fed's Barkin Hopes to Celebrate Above-2% Inflation

WASHINGTON (MNI)
Federal Reserve Bank of Richmond President Tom Barkin said Thursday he won't slap down inflation that "slightly exceeds" 2% while dismissing concerns that prices will surge as demand recovers.
"When inflation nears or slightly exceeds 2 percent, I hope to celebrate it and not be too hasty to quash it," he said. "Our recent changes to our monetary policy framework and our recent statement support modest overshoots of our target to bolster inflation expectations."
Addressing worries from some that inflation will "explode" if a vaccine lights a fire under consumer demand at a time when the Fed has lowered interest rates to zero and printed trillions of dollars to buy government assets, Barkin said "powerful market forces" that have kept inflation in check aren't likely to dissipate soon.
"Should inflation emerge, the Fed has the tools and the will to address it," he said in remarks prepared for a virtual meeting of the Money Marketeers of New York University.

FLEXIBLE AVERAGE TARGET

The Fed's new inflation strategy allows it to "look at our longer-term track record" without committing to a precise formula, Barkin said.

"I'm happy with that balance, as I remain skeptical of formulaic commitments," he said. "Such commitments depend heavily on the central bank's credibility to bind their successors to suboptimal decisions in the future."

With both inflation and employment lagging the Fed's goals, "there is no conflict in giving maximum stimulus, as we're doing today," he said. But he does not endorse "zero forever" because it can lead to excess leverage and undermine financial system stability.

MARKET POWER

Greater price transparency and concentration of market power has made sellers hesitant to raise prices, Barkin said. But if inflation does start to rise, the Fed has the tools to address it.
"In today's environment of stable inflation expectations, I see moderate inflation driven largely by market power and price transparency," he said.
"We may be limited in lowering rates below zero, but we do not face the same constraint when it comes to raising rates to respond to inflation should it appear."
MNI Washington Bureau | +1 202-371-2121 | jean.yung@marketnews.com
USPolicy NewsHomepageFederal ReservePolicy StoryNorth AmericaStoryRegionCentral Bank News
MNI Washington Bureau | +1 202-371-2121 | jean.yung@marketnews.com
USPolicy NewsHomepageFederal ReservePolicy StoryNorth AmericaStoryRegionCentral Bank News

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