Fed’s Bostic: Higher Inflation Poses Real Risk

Atlanta Fed President Raphael Bostic said on Tuesday that there is a “real danger” of inflation expectations drifting from the Fed’s 2.0% target to 4% or higher. If current levels of Fed support are left in place, he added, it could fuel more inflation and thus warrant action “soon” to reduce accommodation.

Main Quotes:
“The business response to what appeared short-term supply and other problems could change the long-run path of inflation.”

“Businesses are now seeking “redundant suppliers” to buffer against future disruptions, adding to their costs.”

“The goal of coming policy actions is to ensure expectations about inflation don’t become untethered.”

“There is a “real danger” of expectations drifting from the Fed’s 2% to 4% or higher.”

“The pandemic induced price changes could “grind on” long enough to “fundamentally alter” how the public thinks about inflation.”

“I will be watching monthly changes in inflation to see if they decline… ready to support more aggressive steps if the pace increases.”