: Yellen’s high inflation forecast translates into a communication headache for the Fed

18237500 - businessman hand pointing to investment as concept

Treasury Secretary Janet Yellen told lawmakers Thursday she thinks high annual rates of inflation will persist to the end of this year.

This forecast translates into a communication headache for the Federal Reserve. Officials there have argued that the recent spike in inflation will be temporary, but that forecast may lose luster if inflation stays elevated for so long.

The rate of inflation over the past year, as measured by the consumer price index, jumped to a 4.2% annual rate in April from 2.6% in the prior month — the highest level since 2008. The spike startled economists and even Fed Vice Chairman Richard Clarida admitted he was surprised by the data.

On Friday, the government will release the April reading of the personal consumption expenditure index, the Fed’s favorite price gauge. Economists polled by the Wall Street Journal project a 3.5% annual gain, up from a 2.3% rise in March.

That’s well above the Fed’s 2% inflation target. Fed officials have said they would welcome inflation above the 2% target for some time to make up for recent years when inflation ran below the target. Officials have not specified exactly what level and duration of inflation above 2% might cause them to reconsider their easy policy stance.

In testimony to a House Appropriations subcommittee, Yellen said White House economists were watching inflation trends very closely.

She said she also thinks that inflation will be temporary and is not “endemic” to the current economy.

The Treasury Secretary attributed the recent spike in prices partly to “substantial shifts in spending” as the economy reopens from the pandemic. Bottlenecks have also emerged, she said.

“As the economy gets back on line, it is going to be a bumpy process,” Yellen said.

The Treasury Secretary told the committee that the Biden Administration’s budget, to be released Friday, assumes that the Fed’s benchmark interest rates will rise from the current near-zero level “over time… to low, but still more-normal, levels than we have now.”

After moving higher earlier this year, the bond market has seemed sanguine about inflation in recent weeks. The yield on the 10-year Treasury note

has moved down closer to 1.6% after hitting 1.74% in late March.

Outside the Box: Tech companies should think twice before asking workers to return to the office

Previous article

: Summer travel is back, but will it be enough to boost flagging U.S. airlines? Probably not, analysts say

Next article

You may also like


Leave a reply

Your email address will not be published. Required fields are marked *

More in News