With strong demand and tight supplies driving inflation more widely across the economy, the Federal Reserve may have a limited time before raising interest rates in response, a US central bank official suggested Friday. .
“As supply chains improve and demand subsides, there is reason to expect inflation to eventually moderate, but it is also clear that the risk of a prolonged period of high inflation has increased,” said the Fed chairman of Kansas City, Esther George, at an energy conference.
“The argument for patience in the face of these inflationary pressures has waned,” he explained.
The Fed took a first step toward more normal monetary policy this week, reducing its monthly asset purchases at a rate that should eliminate them entirely by mid-2022.
Fed Chairman Jerome Powell noted that the start of the reduction in bond purchases should not be taken as a direct sign of how soon the Fed will raise rates.
George, who is traditionally conservative on monetary policy, did not say directly when he would favor a rate hike, but his comments suggest that he is inclined not to wait too long so as not to risk inflation spiraling out of control.
Most of the time, the Fed’s monetary policy makers do not have to choose between achieving the objectives of price stability and employment, he said.
“However, there are times when goals can seem to conflict,” George said. “And now could be one of those moments, with inflation well above its long-term average and labor markets that seem to have more room for recovery.”
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