NEW YORK – While gas and food price hikes have yet to translate into higher underlying inflation, Federal Reserve Bank of Dallas President Richard W. Fisher said, prices must be watched.
“The point is that, as of now, the higher gas and commodities prices have not translated into more general price inflation numbers. My gut, however, tells me that we must not become complacent on this front,” Fisher told those at a New Mexico State University forum Wednesday, according to prepared text released by the Fed.
“We must remain sharply attuned to movements of underlying inflationary forces,” he added. “Should it prove necessary to counter inflationary pressures, I will be among the first to advocate the unwinding of some of the stimulus we have provided and returning monetary policy to a more normal stance.”
Overall, the economy continues its recovery despite “a variety of shocks last year and early this year,” he noted. Also, indicators suggest economic growth will accelerate in coming months.
He suggested the “pace of economic growth may not be as bad as it sounds” and inflation “may not be as good as it sounds.
“The recovery in manufacturing and a bounceback in capital goods orders are particularly heartening. Not only do they contribute toward an economic recovery, but they are also harbingers of a needed rebalancing of our economy,” Fisher said. “During the credit boom of the prior decade, we became too dependent on consumption and housing for our economic growth. We borrowed too much, had unsustainable trade deficits and did not invest enough in business capital. The good news today is that we are making headway in shifting the mix of growth in our economy.
“Our manufacturing sector is recovering as we export more and as our entire economy invests more in equipment and software. In the long run, that will raise our productivity and our living standards. And that’s the kind of recovery that not only will restore jobs, but also will be more sustainable and will help bolster our standard of living,” he said.
As for prices, Fisher said, “we have seen inflationary impulses gaining ground both at home and abroad.”
Headline inflation in the U.S. rose at an annualized rate of 4.9% in March, down from a 5.1% pace in February.
“Numbers like these will make any central banker’s heart skip a beat, especially mine. Yet, here and abroad, a closer look at these numbers will reveal that energy and food prices¯notoriously volatile items¯make up a significant portion of this increase,” he said. “This is not to say that these increases are unimportant; they are clearly worrisome, and we are following them closely. But our job as policymakers is to focus on underlying inflationary pressures, so as to avoid overemphasizing temporary volatility that might lead to faulty conclusions on the economy.”
