US Fed officials continue playing down risk of higher inflation

[NEW YORK] US inflation is unlikely to get out of control despite the unprecedented government spending that's been authorised in response to the coronavirus pandemic, Federal Reserve officials said.

"I think the risk of this scenario is remote," Chicago Fed President Charles Evans said Wednesday during a virtual conference hosted by the Levy Economics Institute of Bard College.

Fed Governor Michelle Bowman, speaking elsewhere Wednesday, offered similar comments, suggesting the risk of inflation running persistently above the central bank's 2 per cent target "still seems small" despite an improving outlook for US economic growth.

The Chicago Fed chief, who has long been one of the central bank's biggest worriers about inflation being too low, was responding to critics of the Biden administration's fiscal programmes, which include not only Republicans but also some economists associated with the Democratic party.

Most of Mr Evans's colleagues at the Fed, including Chair Jerome Powell, have pushed back forcefully against such criticisms in recent months. Instead, they've highlighted the importance of the fiscal support in speeding the labour market back to full employment.

'MORE POSITIVE'

"With these developments, my outlook for growth and unemployment is much more positive today than it was just a few months ago," Mr Evans said, referring to the measures.

Fed officials, following last week's meeting of the central bank's policy-setting Federal Open Market Committee (FOMC), held interest rates near zero and reaffirmed guidance that they would continue buying bonds at a pace of US$120 billion per month until the economy had made "substantial further progress" toward their employment and inflation goals.

Mr Powell said in a press conference afterward that would take "some time". In March, the FOMC published projections showing most officials didn't expect to begin raising the central bank's benchmark interest rate from its current near-zero level before 2024.

The projections also showed expectations that inflation would remain at or slightly above 2 per cent for the next three years, and the unemployment rate would gradually decline to its pre-pandemic level of 3.5 per cent by the end of 2023.

Ms Bowman said some of those projections now appear outdated, with the recovery progressing more quickly than she had anticipated at the time they were published in March. The FOMC will issue updated projections when it next meets in mid-June.

BLOOMBERG