December 6, 2021 — Persistent Inflation is Worrying the Fed


The Federal Reserve met last week; they no longer describe US inflation as transitory, and will amend their policy to keep inflation in check.  The Fed is trying to decide how to manage the highest inflation rates in 30 years against a labor market that hasn’t fully recovered from the massive unemployment caused by covid last year. The unemployment rate remains at 4.2 percent.

Fed Chair Jerome Powell told the House Financial Services Committee “We’ve seen inflation be more persistent. We’ve seen factors that are causing higher inflation to be more persistent.” It has become appropriate to discuss whether the central bank should wind up its asset purchases at a faster pace given the heightened inflation risks.  They see the accommodative policy as having run its course.

Powell said he wants to retire the word “transitory” to describe price increases, as inflation will linger into next year. The Fed is currently scheduled to complete its asset purchase program in mid-2022.  Their next meeting is Dec 14-15 when they could decide to accelerate their tapering. 

Powell’s goals are price stability in conjunction with maximum employment, but those two goals need to be balanced when they are in conflict as they are now.  The Fed wants to make sure inflation doesn’t become entrenched.