A top Federal Reserve official said Thursday there is a higher probability that inflation remains stubbornly high next year than many now see.
St. Louis Fed President James Bullard, speaking to a webinar sponsored by the Euro 50 Group, said that he sees a 50% chance that “we’re facing a higher inflation rate than we would like to see in the U.S. economy.” There is still a 50% chance that high inflation will “dissipate naturally,” he said.
Minutes of the Fed’s September meeting showed a central bank sharply divided over the outlook for inflation. Many Fed officials think there is a much smaller chance that high inflation persists. They argue that inflation is being caused by a “handful of COVID-related, pandemic-sensitive categories in which specific, identifiable bottlenecks were at play.”
Bullard is in the “hawkish camp.” He stressed again that he would like to slow down and end the central bank’s $120 billion of monthly asset purchases at a faster pace than some of his colleagues.
Bullard, who will be a voting member of the Fed’s interest-rate committee next year, has argued that the purchases should end in March, rather than in June or July, as mentioned by many of his colleagues including Fed Chairman Jerome Powell.
Minutes of the Fed’s September meeting show the tapering could begin as soon as mid-November.
The St. Louis Fed President is not in the camp that the U.S. economy is going to slip into “stagflation” where growth slows dramatically as inflation rises.
Bullard said he was “bullish” on the outlook.
“I’m not that worried about the impact of the Delta variant,” on the economy, Bullard said.
While the economy did slow in the July-September quarter relative to the prior three months as a result of the variant, that lost growth “will get pushed out” into the fourth quarter and then into 2022, he said. Many economists now are forecasting a “stunning” 4.5% annual growth rate in 2022, he noted.
Bullard also expects the U.S. unemployment rate to sink to 3.5% or better by the spring from the 4.8% rate seen in September.
“I think the best way to describe the labor market is as a very strong one,” Bullard said. Firms are offering starting and retaining bonuses, he noted.
opened sharply higher on Thursday on upbeat earnings from big banks and a drop in first-time jobless claims.