Interruptions in the supply chain and restrictions in the labor market, coupled with strong consumer demand, could keep inflation high by 2022, said the president of the Federal Reserve de Atlanta, Raphael Bostic.
Once those problems are resolved, labor markets will heal and the Fed may start raising interest rates, he added.
“I was thinking towards the end of the third, perhaps at the beginning of the fourth quarter of 2022,” Bostic told CNBC in an interview, when asked when he estimated that a rate hike could occur. By then, he said, the country’s economy will return to full employment.
His opinion is broadly in line with the evolution of the price scene in the interest rate futures markets, where CME’s FedWatch interpretive tool suggests that the probability of a first rate hike exceeds 50% next June, but grows to more than 80% at the central bank’s September 2022 meeting.
“A lot of this has to do with my confidence in the US economy, my confidence that the labor markets will respond to this demand and that we will get to a very positive place within the year,” he said.
Analysts expect the Fed to take the first step in withdrawing its support for the economy next month by announcing a plan to cut its $ 120 billion in monthly asset purchases. The president of the body, Jerome Powell, has indicated its expectation that by mid-2022 the Fed will no longer add new expansionary policies.
Once the Fed has started reducing bond purchases, Bostic said, it will assess the impact on economic and financial markets and weigh incoming data to determine when interest rates need to be raised. About half of Fed officials believe that rate hikes will not be needed until 2023.
But some central bank officials think that rising inflation could accelerate that time frame.
“It is becoming increasingly clear that this will last until 2022,” Bostic said of mounting inflationary pressures. “Part of the ultimate answer to how long this will take will be how quickly we resolve some of the coronavirus problems, as well as some of the supply chain challenges that are occurring globally.”
“Demand remains very strong,” he added, so if supply and labor constraints can be resolved, “I think there is a lot of room for the economy to grow.”
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