Powell Notes Significant Move Up In Inflation Forecast

Q: You said you expect inflation to fall significantly, is it because you're going to raise rates? Or because the virus effects will fade? Are you afraid you're behind the curve?

• A: Powell notes a 0.4pp increase in the SEP inflation forecasts, says "that's a pretty significant move up."
• And says that's based on both of the factors that the questioner raised. "a broad expectation among forecasters, including our own, that the bottlenecks will alleviate sometime over the course of this year... our policy should begin to have an effect, there will be a lag but it should begin to have an effect on that as well... we can't act as though that's a certainty and we're not going to act as though that's a certainty."
• Powell reiterates concern re inflation risks: "There's a real risk now, we believe, that inflation may be more persistent and that may be putting inflation expectations under pressure, and that the risk of higher inflation becoming entrenched has increased. It's certainly increased. I don't think it's high at this moment, but I think it's increased, and I think that's part of the reason behind our move today - is to put ourselves in a position to be able to deal with that risk and I think we are in a position to deal with that risk.
• We need to see how the inflation data and all the data evolve in coming months but we are prepared to use our tools to make sure that higher inflation doesn't get entrenched. For one reason as I just mentioned it's one of the two big threats the other being the pandemic itself to getting back to maximum employment.