MNI POLICY: Unclear If Nearing Inflation Outbreak-Fed's Bostic

Atlanta Fed President Raphael Bostic said Thursday that while it appears that an underlying inflation surge does not appear likely, clear price readings will not come for a few months, meaning that it can't be ruled out that inflation could surprise.

The Atlanta Fed chief, who said he is not currently thinking the FOMC will need to remove policy accommodation soon, also made a couple of points "on why I'm not sure we are staring down a fearsome inflation outbreak," including the likelihood that clear readings on underlying inflation won't appear for a few months as Covid-19 has "played havoc with prices."

"In short, price volatility exploded in the underlying market basket from which inflation is calculated," he said. "Coming off very low measures a year ago, this is likely to produce a big, but not especially meaningful, spike in inflation readings over the next few months."

Still, it is not "clear that a surge in underlying inflation is imminent," said Bostic, who is a voting member of the FOMC this year. "The latest official readings substantiate that. For February, only one of the nine readings in our dashboard came in above the Fed's target range. I watch for the trajectory of inflation, and I'm not sure the path bothers me."

MNI has reported that fears are growing in Fed circles that a mix of ultra-loose monetary policy combined with a surge in the budget deficit will generate an unwanted inflation spike to which the central bank may fail to respond in time.