Fed's Clarida: inflation likely to rise later this year

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Fed's Clarida: inflation likely to rise later this year

- Federal Reserve vice president Richard Clarida admitted that he was surprised by the rise in consumer prices in April, but argued that the increase in inflation was likely to be near transitory.

On Wednesday, he told a meeting of the National Association for Business Economics that ratings on inflation are likely to rise further this year and possibly increase somewhat further then you will see later this year.I expect inflation to run or perhaps return to - maybe maybe much faster than our 2% target in 2022 and 2023.

Consumer prices have climbed by the most in April since 2009, bringing the increase to 4.2% year-on-year, amid a record increase in used car costs, the Labor Department reported on Wednesday.The news made stocks and bond prices lower.

Calling April's numbers 'one data point, Clarida said inflation was boosted by base effects - current price levels are elevated compared to falling readings a year ago when the economy was virtually shut down to contain Covid 19 - and by some supply bottlenecks.

'We have pent-up demand in the economy, he said 'It may take some time for the supply to increase to demand.

Clarida repeatedably said that the Fed was prepared to act if inflation or inflation expectations rose to undesirable levels.

If we saw evidence that there was a risk of a persistent upward drift in inflation expectations, we would not hesitate to offset this, said he.

He suggested that the Fed is some way off of scaling back the massive stimulus it is providing to the economy.

'The economy is in a long way from our goals, and it is likely to take some time for substantial further progress to be achieved, said he.

The Fed is currently purchasing $80 billion of Treasury securities per month - $80 billion in mortgage backed debt and has pledged to keep this pace 'until substantial further progress has been made toward its goals of increasing unemployment and 2% average inflation.

Clarida was optimistic about the outlook for the economy, saying it expects it to 't pick up steam this year.

Like other forecasters, he said he was surprised by the news of a smaller-then expected increase in the U.S. payrolls in April.

'The near-term outlook for the economy appears to be more uncertain than the outlook on the labor market, he said, adding that it may take some time to match workers with the jobs available after pandemic stages.

'This was an unprecedented shock, he said.We need to be humble and really draw from the data.

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