The president of the New York Federal Reserve on Monday said he thinks the rate of inflation in the U.S. will decline to around 2% next year, though he acknowledged that a “great deal of uncertainty” surrounds his forecast.
In a virtual speech, John Williams said that disruptions caused by the coronavirus pandemic are still significantly affecting the U.S. economy and that these issues won’t clear up anytime soon.
Williams pointed to ongoing shortages in labor and business supplies as a big contributor in the sharp increase in inflation this year as companies have had to pay more for materials and wages, leading to higher prices down the line as well.
Inflation, measured by the Fed’s preferred PCE price barometer, was running at a 4.2% yearly rate as of August.
Although inflation is now well above the Fed’s 2% average target, Williams said he expects price pressures to ease as the pandemic fades and business returns close to normal. Yet he admitted the outlook is uncertain and didn’t put a precise timetable on when inflation would return to the 2% range.
“This process of adjustment may take another year or so to complete as the pandemic-related swings in supply and demand gradually recede,” he said in a speech to the Economic Club of New York City.