Amid hot debate in Washington over whether the aggressive spending plans of President Biden would bring inflation to dangerous levels and overheat the economy. Economies in the White House said on Monday they believed inflation would rise short-term, but be reduced over time to manageable levels.
Jared Bernstein Joins Jen Psaki, Secretary of the White House Press For Regular Briefing
White House Council member Jared Bernstein speaks to reporters every day.
Jared Bernstein and Ernie Tedeschi, a senior council economist, identified three factors which may cause inflation to rise in the coming months.
In the first place, extraordinarily low prices during last spring’s pandemic peak will distort growth rates next year.
Secondly, continuing instability of the supply chain due to the pandemic. This means that some goods are more costly than normal. This could temporarily increase the prices of suppliers for additional costs.
Finally, pent-up demand due to months of lockdowns and limitations could lead some businesses. Especially in the service sector – to increase prices to benefit from the market boom.
Bernstein and Tedeschi stressed that they consider all three of these stresses to be short-term or temporary. A short-term inflationary boost is “consistent” with the US economy’s historic economic success after other upheavals.
“We believe that the most likely outlook for the next few months is for inflation to increase modestly as a result of the three temporary factors discussed above and to slow down to a slower pace later when real inflation starts to meet longer-term expectations,” write the economists.
37% share of investment managers surveyed last month by Bank of America identified inflation. In an interview on Sunday with the CBS 60 Minutes, Federal Reserve Chairman Jerome Powell took the opposite view.” Right now the biggest danger for our economy is that the epidemic will spread faster,” he said.
Biden’s government leaders consistently stressed that they are not worried in the long run. While expecting an inflation increase in the short term. Last summer, the Fed changed its 2% inflation goal significantly. Instead of pulling back the accommodation policy prior to inflation, the central bank would enable inflation to hit an average of 2% over time. This means to accept inflation that runs at 2% to prevent required support from being withdrawn during economic slowdowns. Powell also pointed out that the central bank has the resources it needs to tackle fugitive inflation.
“The Federal Reserve maintains that inflation is going to be mild and temporary. It could be time for the central bank to consider the alternative”. Pat Toomey (R-Pa.), Senate Banking Committee leader, said in a statement on Friday. After Labor Data showed that the U.S. producers’ prices jumped by 1 percent in March, their largest growth of nearly ten years.
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