An uneven global recovery and supply chain bottlenecks are two “potential headwinds” for the economy, Federal Reserve Vice Chairman for Supervision Randal Quarles said today during remarks at an industry event. While consumer spending has rebounded and business investment is back to pre-pandemic levels, Quarles cautioned that “supply bottlenecks have depleted inventories for many goods and rebuilding those inventories will be an important supplement for business spending and factory output.”
Addressing the growing concerns about rising inflation, Quarles said that he attributes it to “temporary factors,” and that he expects inflation “to begin subsiding at some point over the next several months and to be running close to 2% again at some point during 2022. . . . My optimistic outlook for growth and employment places me among those who see the risks to inflation over the medium term as weighted to the upside, relative to my baseline forecast,” he added, citing wage pressures, fiscal policy and above-expected monthly readings on import prices, producer prices and consumer prices.
Should supply chain disruptions persist into 2022, however, Quarles cautioned that “people may adjust their expectations higher for future inflation, which could make above-target inflation more persistent than we currently expect.”