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Powell Sees Base Effects, Bottlenecks Pushing Up Prices Near-Term

FED
  • There are two main reasons why we think inflation will move up. One is base effects. Inflation is likely to move well above 2% given the very low inflation readings recorded in April and May last year. That has started to show up - you saw it in the March reading and in the PCE price data. These base effects will contribute about 1 percentage point to headline inflation and about 7/10 in April and May.
  • They'll disappear over the following months. They're transitory. The other big one is bottlenecks which we're seeing in supply chains in various industries.
  • A bottleneck is a blockage in a supply chain for particular good or goods something that slows down production of goods and delivering them in the market. We think in their nature they will be resolved and not calling for a change in monetary policy since they're temporary and expected to resolve themselves.
  • So I'll just sum up and say we understand our job., we will do our job. We've been focused on inflation deviating below 2%. We used our tools aggressively to keep it back up to 2%.
  • If we see inflation moving materially above 2% in a persistent way that risks inflation expectations drifting up, then we will use our tools to guide inflation and expectations back down to 2%. No one should doubt that we will do that. No one should doubt that we will be prepared to use our tools.
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
Energy BulletsCommodities
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
Energy BulletsCommodities

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