Wall Street has been paying close attention to the outlook for inflation in recent weeks. Key price indexes are expected to bounce back after weak readings last year, and some economists have warned that big government spending could keep them elevated.
That could put a spotlight on Federal Reserve officials’ inflation estimates, and on anything that Jerome H. Powell, the Fed chair, says about the outlook during his news conference after the central bank’s meeting on Wednesday.
The Fed is trying to use its policies to coax the economy back to full employment while lifting and stabilizing inflation, which has been slipping in recent decades. It wants to hit 2 percent annual price gains on average, and it has pledged not to raise rates from near zero until they are poised to hum along at a slightly faster pace for some time.
Inflation has been low for years.
Personal Consumption Expenditures Index, Year-over-year
But some prominent onlookers have warned that the economy could overheat. They say inflation may jump well above the 2 percent average target, thanks to government outlays and booming demand in a reopening economy.
Fed officials have been consistently less concerned about that possibility, and will give an up-to-date snapshot of their own expectations in their first Summary of Economic Projections of 2021. The last set of estimates, released in December, showed inflation stabilizing at 2 percent.
“How much do they revise up inflation? That’s something I’ll be looking for,” said Seth Carpenter, chief U.S. economist at UBS and a former Fed employee.
Analysts broadly expect price gains to accelerate in the coming months for a mechanical reason: The data are about to lap very weak readings from last spring. The most closely watched inflation measures are compared against the same month a year earlier, a recipe for an automatic increase.
But Fed leaders have been clear that a short-lived bounce is not what they’re talking about when they say they want to see quicker increases.
“There’s a difference between a one-time surge in prices and ongoing inflation,” Mr. Powell said this month.
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March 17, 2021 at 05:01PM
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What the Fed says about inflation could become the big story today. - The New York Times
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