In a speech being given virtually to an annual gathering of central bankers, Federal Reserve Chairman Jerome Powell stressed that the beginning of tapering does not signal any plan to start raising the Fed’s benchmark short-term rate.
The Federal Reserve is edging toward an announcement that it will begin paring the pace of its Treasury and mortgage bond buying, which now amounts to $120 billion a month.
Prices at the wholesale level over the past 12 months are up a record 7.8%, the largest increase in that span of time in a series going back to 2010.
Rising inflation has emerged as the Achilles’ heel of the economic recovery, erasing much of the benefit to workers from higher pay and heightening pressure on the Federal Reserve’s policymakers under Chair Jerome Powell, who face a mandate to maintain stable prices.
Wages have been rising rapidly as the economy reopens and businesses struggle to hire enough workers. Some of the biggest gains have gone to workers in some of the lowest-paying industries.
Federal Reserve Chairman Powell reiterated his long-held view that high inflation readings over the past several months have been driven largely by temporary factors.
Nearly 60% of the gain in wholesale prices in June reflected a jump in the cost of services, led by higher margins received by wholesalers and retailers.
The pickup in inflation, which has coincided with the economy’s rapid recovery from the pandemic recession, has heightened concerns that the Federal Reserve might feel compelled to begin withdrawing its low-interest rate policies earlier than expected.
The discussions, revealed in the minutes of the Fed’s June meeting released Wednesday, indicate that the Fed is moving closer to tapering those purchases, even though most analysts don’t expect a reduction until late this year.
In terms of inflation, which is the bogeyman for investors right now, a big and sustained gain in wages would be even more dangerous than the price spikes already seen for oil and other commodities.
The monthly gain in the producer price index, which measures inflation pressure before it reaches consumers, followed a 0.6% increase in April and a 1% jump in March, the Labor Department reported Tuesday.
With inflation rising in a fast-rebounding economy, the Federal Reserve is poised this week to discuss when it will take its first steps toward dialing back its ultra-low interest rate policies. It will be a fraught discussion.
American consumers absorbed another surge in prices in May—a 0.6% increase over April and 5% over the past year, the biggest 12-month inflation spike since 2008.
The discussions, revealed in the minutes of the Fed’s April meeting released Wednesday, marked the first time the central bank has even hinted that the time could be approaching to consider reducing the Fed’s $120 billion monthly bond purchases.
The acceleration in prices, which has been building for months, has unsettled financial markets and raised concerns that it could weaken the economic recovery from the pandemic recession.
Janet Yellen’s comments reignited fears raised by some economists and business leaders that trillions of dollars in new spending that the government has authorized since March 2020 could lead the Federal Reserve to take steps that cool off the economy.
Plastic, paper, sugar, grain and other commodities are all getting more expensive as demand outpaces supply. Companies are also paying more for shipping as fuel costs rise and ports experience longer delays because of congestion.
Federal Reserve Chairman Jerome Powell Powell said he thinks the inflation pressures that are now building in the U.S. economy, partly in response to clogged supply chains that have created shortages of some goods and components, will prove temporary.
Over the past year, wholesale prices are up 2.8%, the largest 12-month gain at the wholesale level in more than two years.
Consumer prices are up 1.7% over the past year, a still moderate performance for inflation, which is running below the Federal Reserve’s 2% target for price increases.
