Inflation Increases Likely to Prove Transitory, Fed Official Says

“These one-time increases in prices are likely to have only transitory effects on underlying inflation, and I expect inflation to return to—or perhaps run somewhat above—our 2% longer-run goal in 2022 and 2023,” Mr. Clarida said in a speech prepared for delivery to the National Association for Business Economics International Symposium. “This outcome would be entirely consistent with the new framework the Federal Reserve unanimously adopted in August 2020.”

Under that strategy, the Fed aims for annual inflation to average 2% over time. In the near term, that will mean letting prices rise faster than 2% a year to make up for lower inflation over the past decade.

Since last year, the Fed has held overnight interest rates near zero and purchased at least $120 billion a month of Treasury and mortgage bonds to smooth the economy’s recovery from the recession caused by the Covid-19 pandemic.

Fed officials reiterated in April their intention to leave rates unchanged until the economy has achieved the central bank’s goals of full employment and 2% average inflation. They have said since December they plan to continue buying assets at the current pace until “substantial further progress” has been made toward those objectives.

“The economy remains a long way from our goals, and it is likely to take some time for substantial further progress to be achieved,” Mr. Clarida said Wednesday, echoing comments from other Fed officials.

Write to Paul Kiernan at [email protected]