U.S. Fed official says supply-demand mismatches at sectoral level likely temporary

WASHINGTON, June 2 (Xinhua) -- A senior U.S. Federal Reserve official said on Tuesday that the supply-demand mismatches at the sectoral level, which pushed up consumer prices and held back more hiring, are likely to be temporary, and urged the central bank to remain steady on its ultra-loose monetary policy.

"The supply-demand mismatches at the sectoral level are making it difficult to precisely assess inflationary developments and the amount of resource slack from month to month," Fed governor Lael Brainard said in remarks to the Economic Club of New York via webcast.

"Although continued vigilance is warranted, the inflation and employment data thus far appear to reflect a temporary misalignment of supply and demand that should fade over time as the demand surge normalizes, reopening is completed, and supply adapts to the post-pandemic new normal," she said.

Brainard said that relative to the entrenched inflation dynamics that existed before the pandemic, the sharp temporary increases in some categories of goods and services "seem unlikely to leave an imprint on longer-run inflation behavior."

"It is critical to remember that inflation averaged less than two percent over the past quarter-century, and that statistical measures of trend inflation ran consistently below two percent for decades before the pandemic," she added.

Brainard's remarks came after the U.S. Commerce Department reported last week that the so-called core personal consumption expenditure (PCE) price index, the Fed's preferred inflation measure, rose 3.1 percent last month from a year ago, the largest 12-month increase since the early 1990s.

Including volatile food and energy prices, the headline PCE price index jumped 3.6 percent from a year earlier, well above the Fed's inflation target of two percent, according to the department.

"While the level of inflation in my near-term outlook has moved somewhat higher, my expectation for the contour of inflation moving back towards its underlying trend in the period beyond the reopening remains broadly unchanged," she said.

Brainard also expected to see further progress on employment in coming months with continued progress on vaccinations, the return of children to fully in-person schooling and the expiration of supplemental unemployment insurance benefits in early September.

"I expect to see further progress on employment in coming months. Today's employment remains far from our goal," she said.

"The best way to achieve our maximum-employment and average-inflation goals is to be steady and transparent in our outcome-based approach to monetary policy while remaining attentive to the evolution of the data and prepared to adjust as needed," said the Fed official.

The Fed has pledged to keep its benchmark interest rates unchanged at the record-low level of near zero, while continuing its asset purchase program at least at the current pace of 120 billion U.S. dollars per month, until the economic recovery makes "substantial further progress."

"Remaining steady in our outcomes-based approach during the transitory reopening surge will help ensure the economic momentum that will be needed, as current tailwinds shift to headwinds is not curtailed by a premature tightening of financial conditions," she said.

[ Editor: WPY ]