To explain the current acceleration, in addition to the comparison effects over one year, the number 2 of the Fed also mentioned “certain bottleneck effects” linked to strong demand.
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The vice-president of the US Federal Reserve (Fed) assured Monday that he still expected inflation only temporary, and not sustainable, despite an acceleration in April that panics the markets.
The sudden shutdown of economic activity in March 2020 “put strong downward pressure on prices, most often transitory. And by reopening (…) it clearly put upward pressure on prices, ”said Richard Clarida, during a videoconference organized by the Atlanta Fed branch.
In addition to the comparison effects over one year, he also mentioned “certain bottleneck effects” linked to strong demand.
According to him, “most” of the pressures that drive up prices “are transitory, but we must wait and remain attentive to the incoming data.”
“Relaunching a $ 20 trillion economy may take longer than it took to shut it down,” he commented.
Inflation climbed in April at its highest rate since 2008, to 4.2% year-on-year, according to the CPI index.
This is much more than the 2% that the Fed is aiming for in the long term.
However, the institution wants to see prices exceed this target for a while, in order to stabilize there later. The Fed uses a measure, the PCE index, whose figure for April will be released on May 28.
And if inflation were to stay too high for too long, “I have no doubt that we would use our tools to resolve this situation,” said Richard Clarida.
The United States is seeing the start of an economic recovery, thanks to the rapid pace of vaccinations and aid from the federal government.
But only 266,000 jobs were created in April, when economists expected a million.
The unprecedented nature of this crisis makes economic forecasting difficult. “This shock was unprecedented, it led to an unprecedented collapse, and we could have an unprecedented recovery,” noted Richard Clarida.
The number two Fed expects to see the world’s largest economy “accelerate this year”, with gross domestic product growth of “6%, maybe 7%. It would be the fastest growth rate in 35 years ”.
The Fed’s latest economic forecast, released in March, forecast GDP growth of 6.5% in 2021.
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