(Bloomberg) -- Federal Reserve Bank of Kansas City President Esther George said bottlenecks contributing to high inflation will persist well into 2022 amid broadening price pressures, suggesting officials should not wait too long to respond.
“As supply chains heal and demand eases, there is reason to expect inflation will eventually moderate, but it is also clear that the risk of a prolonged period of elevated inflation has increased,” George told a virtual energy conference hosted by the Kansas City Fed and Dallas Fed. “The argument for patience in the face of these inflation pressures has diminished.”
The Federal Reserve announced the reduction of monthly asset purchases at the conclusion of its policy meeting Wednesday, which Chair Jerome Powell said is not a step toward raising interest rates any time soon. The move was the first reduction in monetary stimulus since the start of the Covid-19 pandemic, which has slowed the economy.
“Disruptions that initially appeared to be temporary bottlenecks driving up prices now look as if they may be more long-lasting, with widespread reports suggesting that supply chains will not recover until well into 2022,” George said in the text of her speech.
“While in the spring the increase in prices was being driven by select categories of goods and services, more recently the increase in prices has become generalized, and is apparent across a broad swath of the economy,” she said.
At the same time, George, whose remarks were prepared in advance of Friday’s employment report, said she was optimistic for further improvements in the labor force.
“It is important to note that the tightness in the labor market could prove temporary as a sizable number of people, about 5 million, remain out of work relative to before the pandemic,” she said. “A full recovery of the labor market appears unlikely until childcare normalizes.”
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