Get rid of “temporary” inflation

Get rid of “temporary” inflation



On Tuesday, U.S. Senator Pat Toomey quoted the mid-20th-century British economist John Maynard Keynes’s motto, “In the long run, we are all dead “. When asked Fed Chairman Jay Powell about the current situation where inflation is higher than the target, Toumi said: “I know you think this is temporary. But everything is short-lived. Life is short.”

Powell said wisely He will give up the word now, Acknowledging that describing high inflation as “temporary” can cause as much confusion as clarity. The term was first introduced as “temporary” at the end of 2020 when Powell looked forward to inflationary pressures in the coming year. It aims to capture the view that what the central bank must consider is not a temporary spike in prices, nor a “base effect” compared to the previous year, but the bank’s ability to sustain inflation at its target. In Powell’s own words, price increases “will not continue indefinitely.”

Criticism of the Federal Reserve’s monetary generosity and changes in focus “Average inflation”, Catching Powell and continuing to use the word to imply that the central bank governor has taken his gaze away from the ball. In fact, Toumi also asked at the meeting of the Senate Banking, Housing and Urban Affairs Committee, “How long must inflation exceed your target before the Fed decides that inflation may not be so short-lived?” The U.S. central bank has repeatedly had to raise it. Forecasts of price growth, and acknowledged that the pressure is more extensive than initially anticipated.

Arguments about the exact meaning of the term are of no avail, and economic commentators divide it into “team temporary” and “team permanent.” Stop using the phrase will eliminate a source of distraction and unnecessary confusion.However, in addition to improving the central bank’s communication, Powell’s position also Just moved slightlyAlthough he said that the Fed may advance its reduction in asset purchases by a few months, he said he still expects inflationary pressures to ease.

Powell will most likely be proven correct, that inflation will subside. The surge in natural gas prices may be irreversible, but it will almost certainly not repeat itself. The shocking increase in the price of used cars will not be the main driver of inflation.In fact, although the wealthy nations think tank headquartered in Paris OECD raises U.S. inflation forecast For Wednesday’s 2022-from 3.1% to 4.4%-this still means that inflation will be lower than the current 6.2% for most of next year.

What is important to the central bank is anything that may not disappear. If inflation above the target causes companies and workers to expect price increases and incorporate them into decision-making, it may be self-sustaining. Powell was right to say that this is a growing “threat” on Tuesday. It is a wise response to advance the reduction of the so-called quantitative easing policy several months in advance.

The new Omicron variant is a potential spoiler. It is unclear whether the vaccine is still effective against it, and its impact on inflation is also unclear. The OECD points out that this could exacerbate supply chain problems that lead to shortages—and the shift in spending from services to goods. On the other hand, even if the increased fear of infection leads to labor shortages, few tourism or hotel companies may feel that they have strong pricing power. Powell may have abandoned the word “temporary”, but the inflation debate will continue.


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