ZCZC
BCN-02
US-ECONOMY-BANK-RATE
US central bank ready to act if inflation surges: Fed’s Clarida
WASHINGTON, May 13, 2021 (BSS/AFP) – The larger-than-expected spike in US inflation last month “surprised” Federal Reserve Vice Chair Richard Clarida, but he said Wednesday the central bank is ready to act if needed to contain prices.
However, the Fed continues to believe the sharp price increases over the past two months are due to the rebound following the unprecedented shock inflicted by the Covid-19 pandemic and will not last, he said.
“I was surprised” by the jump in the Consumer Price Index last month by 4.2 percent compared to April 2020, Clarida said during a conference of the National Association for Business Economics (NABE).
However, “We’ve been saying for some time that reopening the economy would put some upward pressure on the price level.”
The start of the return to normal after the pandemic shutdowns has created “imbalances” between demand — spurred by generous government stimulus — and supply that is facing bottlenecks, the central banker said.
“We have pent-up demand in the economy. It may take some time for supply to rise up to the level of demand,” Clarida said.
While the Fed has repeatedly stressed that these effects are expected to be transitory, Clarida said if the issues become “excessive and persistent” policymakers “would not hesitate to act and use our tools to bring inflation back down to our two percent longer run goal.”
However, “it is not yet time” to ponder a change, he said. That includes continuing the massive asset purchases used to pump liquidity into the economy.
The Fed last year shifted its policy stance and pledged to keep its benchmark interest rate steady near zero and allow inflation to rise above two percent for some time in order to return the economy to full employment.
Clarida cautioned that while the US economy proved more resilient in the face of the pandemic crisis than many feared last year, further recovery may be slower than seen in recent months.
“It may take longer to reopen a $20 trillion economy than it did to shut it down,” he said.
And “it is likely to take some time for substantial further progress to be achieved.”
He pointed to the disappointing April employment report that showed only 266,000 jobs created last month and said “the near-term outlook for the labor market appears to be more uncertain than the outlook for economic activity.”
“At the recent pace of payroll gains — roughly 500,000 per month over the past three months — it would take until August 2022 to restore employment to its pre-pandemic level,” he said in his prepared remarks.
BSS/AFP/MMA/0938HRS