Fed officials expected inflation to average 4.2 percent in the final quarter of 2021, and to fall to 2.2 percent in 2022.
Inflation has moved sharply higher in recent months, elevated by supply-chain disruptions and other quirks tied to the pandemic. The Fed’s preferred metric, the personal consumption expenditures index, climbed 4.2 percent in July from a year earlier.
But there are questions about how inflation will shape up in the coming months and years. Some officials worry that it will remain elevated, fueled by strong consumption and newfound corporate pricing power as consumers come to expect and accept higher costs.
Others fret that the same one-offs pushing prices higher today will lead to uncomfortably low inflation down the road — used car prices have caused a big chunk of the 2021 increase and could fall, for instance. Tepid price increases prevailed before the pandemic started, and the same global trends that had been weighing inflation down could once again dominate.
Inflation that is either too high or too low would be a problem for the Fed, which aims for 2 percent annual price gains on average over time.
Congress has given the central bank two tasks: It is supposed to foster both price stability and maximum employment.
That second goal also remains elusive. Millions of jobs remain missing compared to before the pandemic, even after months of historically rapid employment gains. Officials want to avoid lifting interest rates to cool off the economy before the labor market has fully healed. It’s difficult to know when that might be, because the economy has never recovered from pandemic-induced lockdowns before.
Article source: https://www.nytimes.com/2021/09/22/business/economy/fed-taper-interest-rate-increase.html