Federal Reserve officials concerned inflation could last longer 'than they currently assumed'

Federal Reserve officials concerned inflation could last longer 'than they currently assumed'
© Greg Nash

The Federal Reserve expressed concerns about inflation during a September meeting, with participants warning it may be having a "larger or more persistent effects" than what is "currently believed."

"Most participants saw inflation risks as weighted to the upside because of concerns that supply disruptions and labor shortages might last longer and might have larger or more persistent effects on prices and wages than they currently assumed," read minutes of the meeting released Wednesday.

Meeting participants noted continued downside "downside risks" from the future of the COVID-19 pandemic, also noting the "possibility of more severe and persistent supply issues."

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According to data released by the Labor Department on Wednesday, consumer prices rose by 0.4 percent in September and 5.4 percent in the past year. Core inflation — which does not factor in food or energy costs — rose by 0.2 percent, keeping within expectations.

Federal Reserve officials and the Biden administration have said they believe inflation will cool off as the economy adjusts to the next phase of its recovery. Treasury Secretary Janet YellenJanet Louise YellenTreasury refrains from naming any currency manipulators US could default within weeks absent action on debt limit: analysis The Hill's Morning Report - Presented by Facebook - Congress avoids shutdown MORE said in an interview this week that she saw the current inflation as "transitory."

Despite their concerns, meeting participants appeared to have a generally optimistic outlook on the economic recovery. During the meeting, the Federal Reserve also discussed the possibility of gradually reducing its monthly asset purchases.

This process would begin by cutting $10 billion a month in Treasury securities and $5 billion a month in mortgage-backed securities. The Fed is currently buying at least $80 billion in Treasury and $40 billion in these securities, and has been doing so since the middle of 2020.

According to the minutes, "Participants generally commented that the illustrative path provided a straightforward and appropriate template that policymakers might follow, and a couple of participants observed that giving advance notice to the general public of a plan along these lines may reduce the risk of an adverse market reaction to a moderation in asset purchases."

However, no decision on the "moderation of asset purchases" was made during the September meeting, though those at the meeting apparently agreed that purchases would be tapered by the middle of next year, as long as the economic recovery remains on track.