Dallas Federal Reserve President Robert Kaplan on Friday raised the prospect of a worrisome rise in U.S. inflation expectations, as imbalances between supply and demand for labor and goods put upward pressure on prices.
Most U.S. central bank policymakers see the upward pressure – evident in a 4.2% jump in annual consumer prices last month – as transitory, expecting supply chains to eventually catch up to higher demand, more workers to return to the labor force as the rollout of COVID-19 vaccines alleviates safety concerns, and working parents to have more flexibility as more schools and childcare facilities reopen.
The spending boost helping fuel price hikes will subside, they believe, once extra savings are gone and government checks are spent. Imbalances also will ease, preventing any permanent shift upward in business and household perceptions of inflation.
“What you don’t know is, depending on how long that goes on, whether that starts to get embedded in inflation expectations, and you worry that inflation expectations start to get to be more elevated, and then you are getting them elevated to a level that is not consistent with anchoring them at 2%,” Kaplan told the University of Texas at Austin’s McCombs School of Business. “That’s the part I’m concerned about – this is a risk for me.”