Fed: Actual rise in inflation larger than expected
Former Dallas Fed Danielle DiMartino Booth and The Americas at Natixis Chief Economist Joseph Lavorgna discuss the newly released Fed minutes and inflation fears.
Americans' inflation fears reached a fever pitch in June, rising to the highest level since June 2013 as the price of consumer goods continued to surge, according to a Federal Reserve Bank of New York survey published Monday.
The median expectation is that the inflation rate will be up 4.8% one year from now, a new high for the gauge, and up 3.6% three years from now, the highest level since August 2013, according to the New York Federal Reserve's Survey of Consumer Expectations.
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Americans also expect the prices of homes to keep rising, with one-year expectations unchanged at 6.2% in June – substantially higher than the previous one-year average of 3.7%. Still, consumers said they expect the price of things like food and gasoline to fall slightly, while expectations for college tuition reached 7% – the highest reading since April 2019.
Fed Chairman Jerome Powell has mostly downplayed the rising prices for goods and services, blaming the increase on widespread bottlenecks that have severely disrupted the supply chain and a wave of pent-up demand among consumers who are flush with cash. Though he's said inflation could turn out to be "higher and more persistent than we expect," Powell has maintained that it's likely transitory.
CONSUMER PRICES SURGE 5% ANNUALLY, MOST SINCE AUGUST 2008
Policymakers at the U.S. central bank are grappling with how to handle the deeply conflicting economic data: While inflation is on the rise – in May, the government reported that consumer prices for goods and services rose 5% in May from a year prior, the fastest year-over-year jump since 2008 – job growth has been slower. There are still some 9.5 million unemployed Americans.
During their two-day, policy-setting meeting in June, Fed officials unanimously voted to hold interest rates near zero, where they have sat since March 2020, and committed to keep purchasing $120 billion in bonds each month.
The Fed gave no signs in June that it was imminently considering scaling back its aggressive bond-buying program, even though policymakers raised headline inflation expectations to 3.4% for 2021 – a full point higher than the March forecast. Minutes from their June 15-16 meeting revealed that officials had discussed how and when to start unwinding their support, but most policymakers reiterated that they were not ready to start pulling back on their asset purchases.
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The New York Fed survey is based on respondents from about 1,300 households.
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