MNI: US May Be Moving To New Inflation Regime- Fed's Barkin

Federal Reserve Bank of Richmond President Thomas Barkin said Tuesday the regime of disinflation during the Great Moderation may be over when the pandemic recedes fully, and the U.S. may face more medium-term inflation pressures than the central bank has become used to over the last few decades.

"We may face more headwinds when it comes to containing inflation going forward. That is, we may need to navigate in the context of more medium-term inflationary pressure than we have experienced during the Great Moderation," Barkin said in a speech titled "Beyond Today's Inflation Storm."

Inflation is broadening and persisting and the Fed's response may not require a hard landing, Barkin said, referencing the March SEP showing seven quarter-point increases this year and for rates to move above neutral. "How far we will need to raise rates in fact won’t be clear until we get closer to our destination, but rest assured we will do what we must to address this recent bout of above-target inflation."

For the medium-term outlook, the Richmond Fed president pointed to increased tariffs in recent years, the pandemic, and the Ukrainian conflict that have laid bare vulnerabilities associated with offshoring and a complex global supply chain. "These changes would suggest higher costs and less ability for intermediaries to drive year-over-year efficiencies," he told the Money Marketeers of New York University.

Fiscal policy may also be shifting in a way that contributes to the headwinds, and reduced labor can also limit growth, he said. "Unless we can find a way to reduce labor demand (e.g., through automation) or increase participation (as Japan has done with older workers), a tighter labor market could also pressure wages, and in turn, prices."