All theories about what drives higher inflation point in the same direction – up: Fed’s Bullard

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There are three schools of thought on what drives inflation, but no matter which one you like, they all point in the same direction: toward higher inflation, St. Louis Fed Chairman James Bullard said Wednesday. If you’re from the school that thinks inflation is primarily caused by the money supply, well, the central bank’s money supply has “skyrocketed” and the Fed has said it’s more relaxed about it than it used to be, Bullard said. during a Reuters-sponsored conversation.

If you think fiscal deficits lead to higher prices, those are “off the charts,” Bullard said. And if you think the cause of inflation is a hot economy that looks like “it’s going to be right around the corner,” Bullard said. “So it doesn’t matter where you come from or what you think are the main determinants, at least in the medium term for inflation, they all point in the same direction,” he said. The chairman of the St. Louis Fed is not a voting member of the Fed’s interest rate committee this year. “It’s been a long time since we’ve seen a lot of inflation in the United States, but we will be watching this as 2021 progresses,” said Bullard. Last week, Bullard said he thought inflation could be higher this year than it has been for quite some time. The Fed has reached its 2% inflation target only briefly since it was first adopted in 2012. The Labor Department reported early Wednesday that the consumer price index rose 0.4% in December, the most cut. fast since the summer. Year-over-year, the CPI index accelerated to a rate of 1.4%, up from 1.2% the previous month and has now risen for seven months in a row. However, it is still well below the federal target of 2%, which is linked to a separate personal consumption expenditure price index. Benchmark 10-year Treasury yields hit 8-month highs earlier this week before falling back on Wednesday. Part of the increase was linked to the expectation of additional fiscal stimulus under the new Biden administration. Other analysts blamed some Fed officials, who have said the central bank could cut its bond purchases in 2021 if the economy is strong enough. The Fed has been buying $ 120 billion a month in Treasuries and mortgage-backed securities since June. During the Reuters event, Bullard declined to participate in that discussion, saying he was happy with the Fed’s guidance to the market that asset purchases would continue until there is “substantial progress toward our targets.” “I’d rather stick with that, because it’s an uncertain situation,” Bullard said, adding that “I don’t want to put specific dates on things right now.” The shares were trading higher early Wednesday. The Dow Jones Industrial Average DJIA, + 0.03% was up 3 points ahead of the House impeachment vote.