Fed Official Sees Risks of More Persistent Inflation

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Michelle Bowman warns structural changes could hamper full recovery of the labor market and drive up prices

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The Labor Department reported Wednesday that so-called core prices, which exclude volatile food and energy categories, rose 4% in September from a year earlier, matching the year-over-year increase recorded in August. . On a year-on-year basis, inflation has been rising at the fastest pace in 13 years since May.

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Ms Bowman also cited a drop in the number of Americans seeking work, along with employers’ difficulty recruiting workers despite offering higher wages and other benefits, as factors adding to potential inflationary pressures.

“Employers are having a very hard time filling jobs,” she said. “It is clear that the shutdown of economic activity for such a long period has had lasting consequences, and the expectation of a smooth resumption of production, transport and business operations may not be fulfilled for some time.”

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Ms Bowman said the slowdown in the pace of payroll growth seen in August and September reflects a limited supply of workers. The increase in the number of people leaving the labor force after a temporary shutdown last year, together with the particular challenges facing small-business owners, will make it challenging to meet the nearly five million job shortfall from February 2020 . said.

“For a number of reasons that are unrelated to the monetary policy stance, I do not expect that we will fully return to employment at pre-pandemic levels any time soon,” she said.

Ms. Bowman did not address her views on a potential interest-rate hike in her prepared remarks. She said she supported the Fed’s plan to reduce the Fed’s $120 billion in monthly bond purchases over a roughly eight-month period starting next month.

“Our property purchases were an important part of our response to the economic effects of the pandemic, but they have essentially served their purpose,” she said. Elevated asset prices, including in the housing markets, are an indication that “any remaining benefits to the economy from our asset purchases are now likely to outweigh the potential costs.”

Nick Timiros and [email protected]

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