Former Obama economist Jason Furman
Inflation was expected to rise in October, but The pace of inflation was worse than expectedIt reached a level not seen since December 1990. The CPI rose 6.2% on a yearly basis, and on a monthly basis, the CPI rose 0.9%, both well above estimates.
There is no easy fix if the Fed is eventually proven wrong about inflation being “temporary,” and the Fed’s view is a concern, according to Harvard professor Jason Furman, former chair of President Obama’s Council of Economic Advisers.
The Fed’s mandate includes maximum hiring and inflation targeting, but Foreman said in an interview with CNBC’s “Squawk Box Europe” on Wednesday that the current bout of inflation is defying the expectations of many.
“What we’re seeing is inflation before the unemployment rate gets to where we want it to be,” Furman said. “Some people don’t think we can have inflation before you have unemployment below 3.5%, or some number like that.”
The October Nonfarm Payrolls report last week showed the unemployment rate at 4.6%, an epidemic low.
“It turns out, in the short term, you’re trying to push too hard and too fast, and the economy can’t do the adjustment on the real production side, and you end up with more inflation and that’s what we’re seeing,” Foreman said.
“I think the Fed has been a little behind the curve and will be tested next year,” he added.
Jason Furman, president of the US Council of Economic Advisers, speaks during an interview outside the White House in Washington, DC.
Andrew Harrier | Bloomberg | Getty Images
In recent months, Federal Reserve Chairman Jerome Powell Inflation is called “disappointing” He will continue “Until next year,” But he stuck to his messages about inflation being largely linked to the pandemic and supply chain issues that will end.
Inflation was expected to peak this quarter at 5.9%, with 6.2% on Wednesday adding to concerns about a central bank losing control of the inflation argument.
At the Fed’s press conference last week with the timing of his tapering announcement, Powell responded to allegations that the Fed did not move fast enough. “I don’t think we’re behind the curve,” Powell said. “I really think policy is well positioned to handle a reasonable set of outcomes, and that’s what we need to do.”
Foreman noted in a tweet on Wednesday that he has been concerned since the summer that faster-than-expected inflation can only go in two directions: either an upward or downward revision to future inflation.
“The upsides happened more than the downsides,” he wrote on Wednesday.
That still could change, Furman said, and as the Fed has argued, the trend of inflation is reversing, but he’s not betting on an easy time for the Fed next year.
In his interview with CNBC, the former Obama economic adviser said that if the Fed is right, and inflation returns to 2.3% in 2022, the median forecast from the last Federal Open Market Committee meeting, “they are fine.”
With one economic indicator from the freight market, Inflation may be at its peak.
But if inflation approaches 3% next year, which Foreman believes is “more reasonable,” the Fed will be put to a serious test.
“They will need to change their game plan and raise prices faster than they are currently doing in the Telegraph,” he said.
Powell said last week That the current level of inflation is not compatible with price stability and that the central bank “will use our tools appropriately to control inflation.”
Forcing the Fed to act sooner could mean increasing the pace of bond tapering it just announced before taking a more hawkish move to raise interest rates, even though the market was on Wednesday Increased bets that the Fed will have to raise interest rates sooner rather than later. dove stock on wednesday Yet inflation is hotter than expected.
While he backed President Obama’s Covid financial relief plan, Forman told CNBC that the plan “was too big” and that this has played a role in the inflation the economy is now experiencing.
While some economists are also concerned about the era of stagflation, Fuhrmann said this should not be a concern because the unemployment rate is falling, and will continue to fall.
But Foreman said but to combat inflation, at this point, “there is no good evidence.”
Among the options the government could pursue in addition to a change in Fed policy would be a dramatic reduction in tariffs, especially on China, which would reduce inflationary pressures and help supply chains.
“Reversing this trend is a top priority for me,” President Biden said in a statement Wednesday about the price hike.