According to a Fed official, US “broad-based” inflation will not decline quickly

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Last Updated on October 4, 2022 by Bitfinsider

A top US central banker said on Monday that although there are some indicators that inflation pressures both domestically and globally are lessening, high prices have spread, making it tougher to quash swiftly (Oct 3).

According to John Williams, president of the New York Federal Reserve Bank, continued strong demand for goods and employees will sustain pressure on inflation, which has reached its highest level in 40 years.

Due to shortages of essential parts like computer chips required for automobiles and gadgets, prices have increased over the past year, in part because of global supply chain hiccups.

Zero-Covid policy in China and the Russian invasion of Ukraine, which caused a spike in food and energy prices, have made these problems worse.

Williams noted in a speech to the US Hispanic Chamber of Commerce National Conference in Phoenix, Arizona, that these supply constraints are loosening as higher interest rates are cooling demand, which is helping to drive down prices of various commodities like lumber and should cut inflation.

The Fed has increased interest rates five times this year for a total of three percentage points in an aggressive effort to reduce demand and assist bring down prices. Further rises are expected this year, according to the central bank.

Demand for durable goods “remains very high – above what can be manufactured and brought to market,” while “demand for labor and services is substantially beyond available supply,” even as supply issues have improved.

But he said that he believes the robust Fed actions, together with similar ones taken by other significant central banks, would contribute to the restoration of global balance.

According to Williams, “the pairing of slowing global demand and sustained supply improvements should contribute to inflation decreasing to roughly 3% next year.”

Annual inflation decreased from its peak of 7.0 percent in June to 6.2 percent in August, according to the Fed’s preferred gauge.

Williams predicted that the US economy will expand modestly in 2023 and be nearly flat this year, with a slight increase in unemployment.

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