‘What if we are in a new era?’: A Fed bank president says the post-pandemic economy could include more ‘inflationary headwinds’

Richmond Federal Reserve Bank President Thomas Barkin cautioned against ignoring disinflationary forces.

Federal Reserve headquarters in Washington, D.C. Ting Shen/Xinhua via Getty

Federal Reserve Bank President Thomas Barkin said that shifts taking place in the post-pandemic economy could potentially lead to more inflationary headwinds that require tighter monetary policy.

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Federal Reserve Bank President Thomas Barkin said that shifts taking place in the post-pandemic economy could potentially lead to more inflationary headwinds that require tighter monetary policy.

In a speech Monday at a Fed conference on technology-enabled disruption, Barkin posed the hypothetical question of what it would mean if the disinflationary forces that previously helped the Fed obtain its 2% inflation goal are changing.

“What if we are in a new era—one in which we face inflationary headwinds?” Barkin said in his prepared remarks. “History may be less of a precedent for appropriate policy. These pressures could make ‘looking through’ short-term shocks more difficult. They could make gradual rate-increase paths less effective.”

Barkin recounted the forces that had lead to the long period of low inflation in the U.S. and said that it was premature to declare that the era was over.

“Never count disinflationary forces out,” he cautioned.

Still, he noted that geopolitical risk has changed energy availability, demographic trends are less favorable now, while firms may prioritize resiliency over efficiency.

“As a result, our efforts to stabilize inflation expectations could require periods where we tighten monetary policy more than has been our recent pattern,” Barkin said. “You might think of this as leaning against the wind.”

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