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Fed’s Bullard Sees Inflation Risks as Americans Adjust to Prices By Bloomberg


© Reuters. Fed’s Bullard Sees Inflation Risks as Americans Adjust to Prices

(Bloomberg). This year’s high inflation could lead to a change in pricing psychology, where consumers and businesses are becoming more used to higher prices. James Bullard, President of Federal Reserve Bank of St. Louis, said that this can create risks for 2022.

“I am concerned about the changing mentality I would say around prices in the economy and the relative freedom that businesses feel that they can just pass on increased costs easily to their customers,” Bullard said Monday during a virtual panel discussion hosted by the International Economic Forum of the Americas.

“For years this has not been the case in the U.S.,” Bullard said. “They felt like if they raised prices, they would lose market share. They would lose their market share. Consumers were determined to move to lower-cost locations and buy low-cost goods. That may be breaking down.” 

Inflation measured by the Fed’s preferred index rose 3.6% in August excluding volatile food and energy prices. Bullard predicted that on that core basis, 2022 inflation would be 2.8%, well above the Fed’s 2% target. By contrast, the policy making Federal Open Market Committee’s median participant predicted 2.3% for next year, according to their September forecasts.

“This is a great debate, an important debate about how to handle this going forward,” Bullard said. “I am concerned that the risks are to the upside, that we will continue to get higher than anticipated inflation and that this higher inflation will persist into 2022. It will dissipate somewhat but not down to where we would like it to be in 2022.”

Bullard is not eligible to vote this year on monetary policies but has been recently among the most hawkish central bank policymakers. 

He’s argued the FOMC should start to scale back its bond buying soon and complete the tapering by March 2022. He argues that this timetable would allow the Fed to adjust its interest rate increases earlier than anticipated to meet rising prices. 

Speaking to reporters on September 22, Fed Chair Jerome Powell said that central banks could start to cut $120 million in monthly asset purchases by November and stop the whole process by mid-2022.

©2021 Bloomberg L.P.


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