Fed’s Barkin sees higher inflation this year, but a reversal in 2022

Richmond Fed President Thomas Barkin told CNBC on Monday that he sees a surge in inflationary pressures this year, which is expected to ease in 2022.

“I think we will see price pressure this year. You have a very strong demand situation and supply restrictions,” said the central bank official during a “Closing Bell” interview. “When these things happen, you will definitely see price pressures.”

However, Barkin added that he expects those pressures to ease as economic dynamics change over the year and the economy returns to a more normal state.

“Inflation is a recurring phenomenon. Prices will go up this year and prices will go up next year,” said Barkin. “I think it’s fair to discuss whether the combination of supply chain restrictions and stimulus-induced price hikes will actually be reversed next year.”

Inflation is a critical part of Fed policy.

Central bank officials prefer a share of around 2% but have announced that they will tolerate a slightly higher level in order to create full and inclusive employment. Until then, they say they won’t raise interest rates until their goals are met.

The Fed’s preferred inflation indicator, the core index of personal consumption expenditure, rose 1.8% yoy in March.

Barkin provided a signpost as to when he could change his mind and vote to streamline policy at least by lowering the monthly rate of asset purchases. The Fed is currently buying at least $ 120 billion worth of government bonds and mortgage-backed securities every month, and investors have wondered when the central bank might curtail its activities.

Barkin said he was looking specifically at the employment population level, which is currently 57.8%. That was 61.1% in February 2020, right before the pandemic, and Barkin said levels nearing it would help “make significant further progress” to the benchmark set by the Fed before starting policy adjustments .

The Department of Labor will announce the latest number of employees in the population on Friday when it releases its non-farm payroll report in April, which is expected to add 978,000 jobs.

“I would love to see that growth,” said Barkin. “As I said about inflation, when we get there, we’ll get there. But we haven’t got there yet.”

Despite fears that inflationary pressures are easing faster than they believe, Fed officials have kept their economic and political views in close order.

In the early afternoon, Fed Chairman Jerome Powell said, “We’re not out of the woods yet, but I’m happy to say we’re making real progress now.”

John Williams, President of the New York Fed, echoed these remarks and said, “If you look out the window today, the view is very different from a year ago.” Given that “while the economy is going in the right direction, we still have a long way to go to achieve a robust and full economic recovery”.

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