The US central bank slashed interest rates to near zero last year to bolster the economy as it was being hammered by the pandemic. Officials also say they will purchase $120 billion a month in bonds until there is “substantial further progress” toward the Fed’s goals for maximum employment and inflation.
Waller said that despite the brighter outlook, the US economy still has a long way to go before those targets are achieved.
Unemployment rates for minority workers are still elevated, he said. And any price increases seen in the near term are likely to be short lived as bottlenecks caused by the pandemic are resolved and the bump in demand from stimulus checks fades.
“Whatever temporary surge in inflation we see right now is not going to last,” Waller said.
A new US Fed index of inflation expectations hit 2.01% for the first quarter of 2021, the first time the quarterly measure has hit the Fed’s 2% target since mid-2018, according to an update released on Friday.
Fed policymakers would be fine with having inflation run above the central bank’s 2% target for some time to make up for periods of undershooting the goal, he said. But officials would act if inflation stayed much higher than that.
“We want it to be on average around 2%,” Waller said. “I don’t think anybody would be very comfortable if it got to three or three plus and stayed there for a while.”
