Five Fed Presidents Praise Inflation, Not Threatened By Rising Yields

Five Fed presidents spoke today in praise of rising inflation. Two of them promised low rates for a long time.

In Praise of Inflation

In a Reuters interview, Barkin says rising bond yields, inflation expectations are a possible win.

  • Richmond Fed: “I am encouraged to see the rise in market indicators of inflation expectations. That is what we are trying to support.”  Barkin said he regarded a recent rise in interest rates on Treasury bonds as also part of a “reflation trade,” a sign that investors were factoring future hikes in prices into their decisions by demanding higher interest rates, rather than representing a worrisome tightening of financial conditions.
  • St. Louis Fed: “The ingredients for higher inflation are in place,” St. Louis Fed President James Bullard said in separate comments to reporters. “You have a very powerful fiscal policy in place and perhaps more to come,” with Democrats now about to control the White House as well as the U.S. Senate and House of Representatives.
  • Philadelphia Fed: President Patrick Harker called the early U.S. vaccination figures, with fewer than 5 million inoculated so far, “incredibly disappointing.” “We are looking at a long period where the fed funds rate will stay at essentially zero,” Harker said. He saw "no signs that inflation is going to go out of control.”
  • Chicago Fed: President Charles Evans expressed more skepticism about the inflation to come. The boost to inflation from added fiscal spending, he told a bankers group on Thursday, is "not nearly as strong as I would like.” He said he believes inflation won’t reach 2% until 2023, and that it would not be unreasonable for the Fed to wait until mid-2024 before raising short-term rates from their current near-zero levels.
  • San Francisco Fed: President Mary Daly, in an event Thursday put on by the Manhattan Institute’s Shadow Open Market Committee, said she believes a stronger labor market will eventually give rise to higher inflation, though the upward push on prices from a tight job market is likely weaker than it was in the past, making a sudden surge unlikely. At the same time, Daly said she was reassured by a recovery in inflation expectations, which showed market participants, households and businesses are beginning to believe the Fed will deliver on its aim to overshoot 2% inflation.
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