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U.S. to see growth boom, but Fed's Williams says inflation not a worry

10 Comments
By Heather SCOTT

The U.S. economy is likely to see its fastest growth in nearly four decades this year, but the short-term inflation spike that will come with the rebound is not a cause for concern, a top Federal Reserve official says.

The world's largest economy still needs to see several months of strong employment growth to achieve a full recovery, said John Williams, president of the Fed's influential New York branch, stressing that the central bank will be in no hurry to alter its stimulative policies.

U.S. GDP will expand by around seven percent this year as it bounces back from the Covid-19 pandemic, Williams said, calling it "welcome progress after the toughest period for the economy in living memory."

But "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," Williams said in a speech to the Women in Housing and Finance annual conference.

He credited the Fed's stimulative policies, including interest rates near zero, with having "positive effects" on the economy, enabling Americans to purchase homes and big-ticket goods.

"In fact, with accommodative financial conditions, strong fiscal support and widespread vaccinations, I expect that the rate of economic growth this year will be the fastest that we've experienced since the early 1980s," he said.

But as economic activity and consumer demand picks up after months of shutdowns, rising energy prices and the rebound from the pandemic downturn are pushing prices higher, fueling concerns about an inflationary spiral.

But Williams said, "it's important not to overreact to this volatility in prices resulting from the unique circumstances of the pandemic."

He projected inflation will fall back to the central bank's two percent target in 2022 "once the price reversals and short-run imbalances from the economy reopening have played out."

Fed Chair Jerome Powell last week made the same point as he tried again to quell rising concern among investors and some economists, saying there is a difference between "one-time price increases" and a persistent rise in inflation.

Speaking to reporters after the speech, Williams said market expectations also point to a decline in inflation.

In the near-term, "a sizeable chunk" of the price spikes are due to comparison to the sharp declines in the early months of the pandemic shutdowns.

But those effects will go away. "Some of it really ... is arithmetic," he said, but stressed that the Fed will be watching all the factors driving prices.

Powell, in a speech Monday, said the U.S. economic outlook had "clearly brightened," but also cautioned that "we're not out of the woods yet."

He stressed that the pain of the economic crisis has hurt lower income workers most, and Black and Hispanic workers suffered larger job losses.

"The Fed is focused on these long-standing disparities because they weigh on the productive capacity of our economy," Powell told a community development group.

"We will only reach our full potential when everyone can contribute to, and share in, the benefits of prosperity."

Williams noted that the economy added 900,000 jobs in March, and said, "I am hopeful that we will see very strong job gains over coming months as the economy continues to reopen."

The Labor Department is due to release the jobs report for April on Friday, and the median forecast is for the United States to add one million jobs.

© 2021 AFP

©2021 GPlusMedia Inc.

10 Comments
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There are already credible news reports that food prices will be rising this summer in the U.S.

2 ( +2 / -0 )

There are already credible news reports that food prices will be rising this summer in the U.S.

Food and fuel prices are volatile, cyclical and not included in the calculation of core inflation. If you look at more fundamental measures such as money supply trends and velocity of money, the fundamental pressures remain deflationary.

-2 ( +0 / -2 )

Anyone catch Treasury Secretary (former Fed Chair) Janet Yellen the past several days? First, on Monday she told The Atlantic's Future Economy Summit that 'interest rates may have to rise "a little bit to make sure our economy doesn't overheat". She went on to say that the effect of fiscal policy on monetary policy "could cause some very modest increases in interest rates... these are investments an economy needs to be competitive and I think our economy will grow faster" as a result.

Not a surprise to anyone not living under a rock lately.

The next day, she returned to message via a WSJ event: "Let me be clear it’s not something I’m predicting or recommending." She went on to say that she doesn't anticipate inflation being an issue, but that the Fed has the necessary tools to combat higher prices, if needed.

Anyone's guess, but many agree that, the remark coming from a former fed during lean times, Yellen is signalling well in advance a direction toward higher rates. Particularly if the U.S. really does see GDP growth close to 7% by the end of the year.

2 ( +2 / -0 )

Officially, Fed Chairman Jerome Powell went on record last month to say that he doesn’t want inflation that substantially exceeds 2%, or inflation for a prolonged period. Worries about inflation are not isolated. Significantly, FactSet recently released data showing that 47 S&P companies have mentioned inflation on their earnings calls for Q1 2021—more than during any other quarter in the last 10 years.

1 ( +1 / -0 )

Yet, @ArtistAtLarge 8:09am, this headline reads: “...inflation not a worry.

“There are already credible news reports that food prices will be rising this summer in the U.S.” -

Were there also ‘credible news reports’ in the last year of “substantial salary increases, minimum wages raised across the board and lowered rates of unemployment and job losses”?

Are you saying we can’t trust what we’re being told?

0 ( +0 / -0 )

“There are already credible news reports that food prices will be rising this summer in the U.S.”

I love quotes like this. They tell you nothing but sound ominous. If one goes back month by month every year from 2020 all the way to 1968 one discovers that food price increases are always greatest in the summer. That is why the core inflation rate does not include food prices. The are cyclical and can volatile. It is nothing new.

https://www.usinflationcalculator.com/inflation/food-inflation-in-the-united-states/

1 ( +1 / -0 )

Inflation is routinely lied about by the powers that be because it is essentially a stealth tax on the average citizen. Personally I am highly skeptical about the official CPI numbers in most countries around the world. They are understated. Once people start getting out and about and spending picks up (rather than the stimulus money being funneled into asset purchases) I think there is a good chance inflation will rise further. Yellen talking about interest rate rises is risky - US and other developed countries will really struggle if their cost of borrowing rises .

1 ( +1 / -0 )

It is already on the up this year

https://www.inflation.eu/en/inflation-rates/united-states/historic-inflation/cpi-inflation-united-states-2021.aspx

1 ( +1 / -0 )

It is already on the up this year

Spiking from the latest stimulus payments and some supply disruptions, such as microchips and lumber. Many businesses did not expect economic activity to pick up as soon as it has and were caught flat footed with no inventory and not enough employees to meet demand. That is not a long term problem. The fundamentals that have driven deflation among most developed economies are still there and no nation is taking the steps necessary to correct it.

0 ( +0 / -0 )

The stores look more and more like the old soviet union stores. I need to buy some more silver coins.

0 ( +0 / -0 )

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