NEW YORK – Rising demand and disrupted supplies caused a spike in commodities prices over the past year, and it is unlikely that they will cause consumer inflation or derail the recovery, so it does not warrant any substantial shift in the stance of monetary policy,” Federal Reserve Board Vice Chair Janet L. Yellen told the Economic Club of New York Monday.
“However, my colleagues and I are paying close attention to the evolution of inflation and inflation expectations, and we are prepared to act as needed to help ensure that inflation, over time, is at levels consistent with our statutory mandate,” she said according to prepared text of her speech, which was released by the Fed.
In addition to pushing inflation, as measured by personal consumption expenditures to an rate about 4% annually from an average below 1.5% for the two previous years, “data suggest that surging prices for gasoline and food have pushed up households' near-term inflation expectations and are making consumers less confident about their economic circumstances,” she said.
Fed policy, she said, is not the reason for energy and food price hikes, and while these financial strains are, “without doubt, creating significant hardships for many people,” “empirical analysis suggests that these developments, at least thus far, are unlikely to have persistent effects on consumer inflation or to derail the recovery. Critically, so long as longer-run inflation expectations remain stable, the increases seen thus far in commodity prices and headline consumer inflation are not likely, in my view, to become embedded in the wage and price setting process and therefore are not likely to warrant any substantial shift in the stance of monetary policy. An accommodative monetary policy continues to be appropriate because unemployment remains elevated, and, even now, measures of underlying inflation are somewhat below the levels that FOMC participants judge to be consistent, over the longer run, with our statutory mandate to promote maximum employment and price stability.”
She added, “While I continue to anticipate a gradual economic recovery in the context of price stability, I do recognize that further large and persistent increases in commodity prices could pose significant risks to both inflation and real activity that could necessitate a policy response.”
