Fed willing to skip jump in inflation

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    WASHINGTON- Facing a still-scarred economy that may need an extended time to recover fully, Federal Reserve officials last month debated how to lay the groundwork for the public to accept higher inflation, and also the need to “stay vigilant” for signs of stress in buoyant asset markets, according to minutes of the US central bank’s Jan. 26-27 policy meeting.

    In discussions that ranged from the public’s perceptions of inflation to the vagaries of Robinhood-type retail stock trading platforms, Fed officials said they were still prepared to keep their easy monetary policy on track to help heal a job market still ailing from the impact of the coronavirus pandemic.

    With a jump in some prices expected this spring, “many participants stressed the importance of distinguishing between such one-time changes in relative prices and changes in the underlying trend for inflation,” according to the minutes, which were released on Wednesday.

    “A number of participants” said they saw such price increases on the horizon for goods “whose production has been subject to supply chain constraints, or soon could be; others anticipated that a possibly abrupt return to normal levels of activity could result in one-time increases in certain prices,” the minutes stated as Fed officials wrestled with how to prepare for a post-pandemic reopening of the economy.

    The United States remains under siege from the health crisis, but with new vaccines being distributed and inoculations running at more than 1.5 million each day, the economy is expected to run hotter this year.

    Major food producers said this week that they were mulling possible price hikes, and data on Wednesday showed the producer price index for final demand jumped last month by the most in more than a decade.

    Fed officials, determined to restore the job market and push inflation to 2 percent on a persistent basis, plan to ignore all that.

    In the drive to explain why to a public typically sensitive to the prices of basic goods like food and energy, Fed officials emphasized the need to focus on the differences between “temporary factors affecting inflation” and more systemic changes in prices that the central bank tries to targ et, the minutes showed.

    In a debate over the pandemic’s endgame, others were concerned about the potential for stress to bubble up in the financial system.

    “A few participants stated that it would be important to stay vigilant to ensure that the banking system remained strong and resilient,” with “some participants” noting the boom in initial public offerings of stock, and rising asset values “that might have been affected by retail investors trading through electronic platforms.” – Reuters