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US to see growth boom, but Fed's Williams says inflation not a worry

Published : Wednesday, 5 May, 2021 at 12:00 AM  Count : 155

WASHINGTON, May 4: The US economy is likely to see its fastest growth in nearly four decades this year, but the short-term inflation spike that will come with the rebound is not a cause for concern, a top Federal Reserve official said Monday.
The world's largest economy still needs to see several months of strong employment growth to achieve a full recovery, said John Williams, president of the Fed's influential New York branch, stressing that the central bank will be in no hurry to alter its stimulative policies.
US GDP will expand by around seven percent this year as it bounces back from the Covid-19 pandemic, Williams said, calling it "welcome progress after the toughest period for the economy in living memory."
But "While I am optimistic that the economy is now headed in the right direction, we still have a long way to go to achieve a robust and full economic recovery," Williams said in a speech to the Women in Housing and Finance annual conference.
He credited the Fed's stimulative policies, including interest rates near zero, with having "positive effects" on the economy, enabling Americans to purchase homes and big-ticket goods.
"In fact, with accommodative financial conditions, strong fiscal support and widespread vaccinations, I expect that the rate of economic growth this year will be the fastest that we've experienced since the early 1980s," he said.
But as economic activity and consumer demand picks up after months of shutdowns, rising energy prices and the rebound from the pandemic downturn are pushing prices higher, fueling concerns about an inflationary spiral.
But Williams said, "it's important not to overreact to this volatility in prices resulting from the unique circumstances of the pandemic."
He projected inflation will fall back to the central bank's two percent target in 2022 "once the price reversals and short-run imbalances from the economy reopening have played out."
Fed Chair Jerome Powell last week made the same point as he tried again to quell rising concern among investors and some economists, saying there is a difference between "one-time price increases" and a persistent rise in inflation.
Speaking to reporters after the speech, Williams said market expectations also point to a decline in inflation.
In the near-term, "a sizeable chunk" of the price spikes are due to comparison to the sharp declines in the early months of the pandemic shutdowns.
But those effects will go away. "Some of it really … is arithmetic," he said, but stressed that the Fed will be watching all the factors driving prices.    -AFP

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