Fed’s Williams says inflation to top 2% for rest of the year but decline after economy is recovered

Don’t panic about rising inflation in 2021. That is the message the President of the New York Federal Reserve delivered on Monday.

John Williams, one of the leaders of the US Federal Reserve, expects inflation to exceed the Fed’s 2% target as the year progresses.

However, he also predicts that inflation will fall to 2% by 2022 after most of the US and global economy are reopened and demand for pent-up demand is largely met.

Read: Powell releases new Fed data showing how the pandemic has hit the poorest hardest

“It is important not to react to these price fluctuations that result from the unique
Circumstances of the pandemic and instead continue to focus on underlying inflation trends, ”Williams said in a virtual speech ahead of the annual“ Women in Housing and Finance ”symposium.

The cost of many critical parts and materials has risen this year due to a rapid strengthening of the U.S. economy and ongoing disruptions in global supply chains related to the pandemic. Computer chips, which are used in automobiles, appliances, and a range of other goods, are particularly scarce.

Shortages and rising prices forced American producers to cut production in April despite high demand. As a result, inflation has recovered from near zero last year to an annual rate of more than 2% from April onwards.

Read: “Insane” prices and rampant bottlenecks frustrate manufacturers and threaten to slow economic recovery, ISM data shows

Senior Fed officials insist they want to stick with their easy-money strategy to stimulate the economy, saying that a spike in inflation would be temporary. The central bank has taken unprecedented steps to bring US interest rates to record lows.

Williams said the Fed must continue to support the economy despite rising inflation as the US is nowhere near full recovery. He pointed out that there are still 8.5 million jobs missing and that key industries are still a long way from being restored.

Read:: Jobs are returning as the economy accelerates and the coronavirus subsides

He also said a slow global recovery could further hamper the US

“While I am optimistic that the economy is now headed in the right direction, we still have a long way to go to achieve a robust and full economic recovery,” he said.

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