'Biggest growth quarter of all time' will help inflation meet overhauled target, Fed's Bullard says
- Third-quarter GDP is on track for 30% growth, and such strong improvement can lift inflation closer to its new target, James Bullard, president of the Federal Reserve Bank of St. Louis, said Friday.
- The Federal Reserve's updated policy framework allows for periods of stronger-than-usual inflation to combat weak price growth through the pandemic.
- The third quarter is "the biggest growth quarter of all time in the US," and it could bring "more inflation than we have during pre-pandemic era," Bullard said.
- The Fed president also expects unemployment to trend lower than anticipated. While his Fed colleagues project the rate to sit at 7.6% by the end of the year, Bullard sees unemployment falling to 6.5% over the same period.
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Third-quarter economic growth will be a shot in the arm that ultimately helps the US reach a healthy level of inflation, James Bullard, president of the Federal Reserve Bank of St. Louis, said Friday.
Economists largely expect gross domestic product growth to hit record highs in the third quarter as reopenings and partial containment of the coronavirus bring activity back online. Bullard anticipates GDP to be "off the charts," and that the rebound will drive inflation closer to the central bank's new target.
"This is the biggest growth quarter of all time in the US. It looks like 30% at an annual rate," Bullard said during a virtual conference with the Boeing Center for Supply Chain Innovation.
He continued: "I actually think you may see more inflation than we have during the pre-pandemic era when things were very quiet and inflation was very subdued."
The Fed updated its policy framework in late August to gain greater control of price growth over time. Where the central bank previously targeted a 2% inflation rate, it now plans to guide an average inflation rate of 2% over time. The overhaul allows for temporary overshoots of the target level after periods of weak price growth.
Chair Jerome Powell said in a Wednesday press conference that the Fed will aim for higher-than-usual inflation after the pandemic pushed the rate as low as o.1% in May. Some economists have raised doubts that such overshoots are possible, as the Fed failed to reach its 2% target in recent years. Bullard rebuked such concerns, adding that relaxed central bank policy, a larger federal deficit, and deferred demand can lift inflation faster than anticipated.
"I think this will be quite successful," he added.
The Fed president also expects unemployment to trend above expectations and fall to 6.5% by the end of the year. The projection is markedly more optimistic than Fed policymakers' median forecast of 7.6% published on Wednesday. The rate sank to 8.4% in August, but still has a ways to go before returning to the pre-pandemic low of 3.5%.
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