Atlanta Federal Reserve President Raphael Bostic confirms the obvious: this current inflation is not transitory. He said that this year’s surge in prices is lasting longer than what government officials expected. As a result, it’s only appropriate to say that it’s not transitory.
On Tuesday, Bostic said that the sharp increase in prices in 2021 tied to the pandemic already went beyond the prices of major goods.
In addition, the period won’t be brief. Bostic’s speech marks a break with conventional wisdom within the leadership of the Federal Reserve.
Central bank officials continue to insist that the surge in inflation is temporary. In fact, Fed Chairman Jerome Powell said that inflation is transitory. It largely reflects a surge in pent-up demand.
Nope, The Current Inflation Is Not Transitory
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In a virtual speech to the Peterson Institute of International Economics, Bostic dismissed the notion of transitory inflation.
“Transitory is a dirty word,” he declared. “It is becoming increasingly clear that the feature of this episode that has animated price pressures — mainly the intense and widespread supply-chain disruptions — will not be brief,” Bostic said. “By this definition, then, the forces are not transitory.”
Interestingly, Bostic spoke with a glass jar labeled “Transitory” by his side. Throughout the meeting, Bostic will drop a dollar every time he mentions the word. The practice has become a running joke between Bostic and staff over the past few months.
Fed To Taper It $120 Billion Monthly Bond Purchases
Bostic shared his opinions in a Q&A session with Peterson president Adam Posen, Bostic also supported the Federal Open Market Committee’s plans to taper its $120 billion in monthly asset purchases.
Federal Reserve officials will most likely vote on it during their November meeting. In addition, the Atlanta Fed President said US employment growth and recovery exceeded his expectations.
However, Bostic thinks tapering won’t affect the economy much. That’s because markets are functioning well. The US economy’s issues are more related to supply-chain disruptions from the pandemic and not due to demand.
“I’ve adjusted my ‘dot plot’ submissions to reflect much greater growth, much more in terms of jobs and also higher inflation,” Bostic said. He referred to the committee’s quarterly interest rate forecasts.
“It’s also called me to pull forward some of my thinking about when interest rate liftoff will be. That’s still more than a year off in my forecasts,” he added.
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St Louis Fed President Agrees That Inflation Is Not Transitory
Bostic’s concern with inflation received support from St. Louis Fed President James Bullard. He also favors tapering bond purchases in November and finishing by 1Q 2022.
This gives the central bank flexibility to raise rates if necessary. “The story that inflation will come down naturally is a reasonable one, but I only want to put 50% probability on that scenario,” Bullard said on Tuesday. “I have got to put some probability on a scenario where inflation stays high or even goes higher,” he said.
Meanwhile, Bostic said he’s seeing signs of broadening inflation. “I believe the evidence is mounting that price pressures have broadened beyond the handful of items most directly connected to supply-chain issues or the reopening of the services sector,” he said.
He also noted that longer-run inflation expectations measures have climbed. Many item prices reached decade highs. “These upside risks to the inflation outlook bear watching closely.
Up to now, indicators do not suggest that long-run inflation expectations are dangerously untethered. But the episodic pressures could grind on long enough to unanchor expectations. We will be watching carefully,” Bostic said.
Watch The Maverick of Wall Street video reporting that the Fed Finally Admits Inflation Is not Transitory:
Do you agree with Atlanta Fed President Raphael Bostic that inflation is not transitory? Do you foresee a long period of high prices in most goods?
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