Powell Says Fed Expect Inflation to Move Meaningfully Toward Goal

Q: The FOMC forecast for inflation is tame for the rest of the year - how much longer can we sustain high infl rates before you get nervous.

• A: Inflation has come in above expectations over the last few months. Looking behind the headline numbers, the incoming data are consistent with the view that the prices that are driving that higher inflation are from categories that are being directly affected by the recovery/reopening of the economy. E.g., lumber prices, used cars (a perfect storm of strong demand and limited supply).
• Inflation is going up at an amazing annual rate. But we do think it makes sense that that would stop and in fact it would reverse over time. We think we will be seeing some of that. When we will be seeing it we are not sure. That narrative seems still likely to prove correct, although as I pointed out at the last press conference, the timing is uncertain. So are the effects in the near term. But over time, it seems likely that these specific things that are driving up inflation will be temporary. We are going to be looking at the monthly pricing data.
• The labor market is going to be important both for the maximum employment goal but also for inflation, and we will be looking at that. We expect that we will see increases in supply over coming months, as the factors that we believe have been suppressing supply abate. I can't give you a exact number or exact time. But I would say that we do expect inflation to move down. If you look at the forecast for 2022 and 2023 among my colleagues you will see that people do expect inflation to move down meaningfully toward our goal. The full range of inflation projections for 2023 falls between 2 and 2.3% which is consistent with our goals.