The Federal Reserve expects inflation to approach its 2% annual target, but does not see runaway price pressure, Philadelphia Fed Chairman Patrick Harker said Tuesday. “At this point, we don’t expect inflation to get out of control,” Harker said during a webinar hosted by the Delaware State Chamber of Commerce.
“We have time to move because we don’t see inflation getting out of control. If so, we will act accordingly, ”he said. The consumer price index rose 0.6% in March, the biggest month-on-month rise since 2012. The 12-month rate rose to 2.6%. Read: US Consumer Prices Rise in March The Fed expects its favorite measure, the Personal Consumption Spending Index, to accelerate to an annual rate of 2.4% this year before falling back next year. Many economists are concerned that the huge fiscal stimulus approved by Congress earlier this year will cause the economy to overheat, which will raise consumer prices significantly. The answer to this debate will not arrive until the end of the year. For now, inflation could rise to an annual rate of 3.7% in May, as weak readings from last spring, when the pandemic hit, are pulled from the measure. Fed Chairman Jerome Powell told CBS News “60 Minutes” Sunday that the Fed will wait to see inflation before beginning to exit its loose monetary policy stance. In previous economic recoveries, the Fed has eliminated the accommodation based on higher price forecasts. Keeping your foot on the monetary policy accelerator increases the risk that the central bank will fall behind in raising interest rates, which means that it would have to raise rates higher to reduce inflation. In his comments, Harker endorsed Powell’s go-slow approach. “While the economic situation is improving, the recovery is still in its early stages and there is no reason to withdraw support yet,” Harker said. Harker said the recovery remains a bit fragile. The pause in the use of the Johnson & Johnson vaccine may raise further questions about the vaccine, he noted. “It is a very fragile recovery with variations that we are seeing. The first job is to control this virus. So at this moment withdrawing my accommodation does not make sense, ”he said. Tech stocks rose Tuesday, but the Dow Jones Industrial Average DJIA, -0.48%, was hit by the J&J news.