Fed Report Says Jobs, Wages Could Drive Persistent Inflation

The Federal Reserve (Fed) has warned that inflation could persist longer than expected if labor shortages and wage increases continue, casting aside its earlier faith in inflation.transient” to paint a more cautious view of how the US economy may evolve.

In the latest monetary policy report to Congress, which is delivered twice a year, the Fed said that price increases were broadened from last year and that the forces driving them were not limited to supply chain issues that could be resolved quickly and easily.

The labor shortage in the United States and the resulting increase in wages are also at stake, and if they are not reduced, inflation may be more persistent.

Although the report argued that some pressures on the price of goods could ease in the coming months as the distribution of supply improves, it highlighted that “if labor shortages continue and wages rise faster than productivity across the board, inflationary pressures could persist and continue to widen”.

Fed Chairman Jerome Powell will discuss the report at congressional hearings next week, where he is likely to be asked about inflation. New data released on Friday showed the Fed’s preferred inflation rate rose 6.1% through January, triple the 2% the Fed is targeting.

To combat rising inflation, the Fed has signaled that it will start raising interest rates next month. “With an adequate policy, inflation is expected to decrease throughout the year”, states the report.