““I guess that I still tend to believe that some of these forces pushing up inflation…will at least stabilize and begin to moderate sometime during this year…without the Fed’s direct intervent”
Federal Reserve officials have been leery about sounding too optimistic about inflation, having been burned last year for arguing that high inflation readings were going to be “transitory.”
Into the breach stepped former Fed Chairman Ben Bernanke, who said Monday what his former colleagues dare not say.
“I guess that I still tend to believe that some of these forces pushing up inflation like the supply chains, like the preference for durable goods or services and some of the commodity price increases gas prices and so on, that they will at least stabilize and begin to moderate sometime during this year which would mean that inflation will come down to some extent, not saying by itself, but without the Fed’s direct intervention,” Bernanke said, in an interview with CNBC.
Consumer price inflation is running at a torrid 8.3% pace. Any reduction would be decidedly good news for the economic outlook.
“If that happens, the Fed would have to raise rates perhaps moderately above neutral,” Bernanke said.
Fed Chairman Jerome Powell has estimated that “neutral” rate — which doesn’t boost demand or dampen demand — was in the range of 2%-3%. Some Fed officials think the rate is slightly higher at around 3.5%. Former Fed staffers and outside economists think it could be even higher than that.
In any case, given how strong the labor market is, a rate just above neutral won’t push the economy over the cliff, Bernanke said.
Taking rates above “neutral” mean “a slowing of the economy, maybe even a stall, but not a severe recession,” Bernanke said.
At the moment, the Fed’s benchmark rate is in a range of 0.75% – 1%. The central bank has guided investors that it plans to raise the rate to 1.75%-2% by the end of July.
Investors in Fed funds futures contracts expect the Fed’s policy rate to get to 3% by March 2023 and then hold steady, according to the CME FedWatch Tool.
The yield on the 10-year Treasury note TMUBMUSD10Y, 2.888% slipped below 2.9% on Monday.