Federal Reserve President, Esther George, in her recent speech cautioned against a rigid outlook to monetary policy in a post-pandemic time. She said that post-pandemic may involve different inflation and dynamics related to employment than what has been witnessed in the past few years and has been worked into the current policy framework of Fed.
The new framework of emphasizing job generation and faith that the parameters that kept inflation low in past few years will continue to do so. This has led the Fed Reserve to pledge to continue buying in bonds ($120 billion a month) till the time the job market improves significantly and to leave interest rates close to zero even longer even amidst rise of prices.
The many of Fed officials suspects that the price pressures come from temporary problems which will be eased in coming months. President George said that she is not inclined to completely dismiss today’s pricing signals and she is not inclined to be overly dependent on historical relationships and market dynamics in judging the approach for inflation.
President George expressed that Fed Reserve needs to be on guard in case the market dynamics which has kept inflation low in past few years change as the economy is reopening with a potential flood of spending by more families since they have cooped up for almost a year and sitting on greater savings. Therefore, she expressed that due to the increased flood of spending, there can be a possibility of increase in inflation and the risk of inflation hike can’t be completely dismissed.
