WASHINGTON—Economists have started to feel more uncomfortable that the Federal Reserve could be too complacent with its inflation forecast and end up tightening the monetary policy a bit too late to prevent harmful inflation.
Some economists have been warning for months that excessive government spending to help the country recover from the pandemic-induced recession could overheat the economy and fuel inflation.
Americans have started to see prices jump across a variety of products in recent weeks. And worldwide commodity shortages that have led to price hikes for many raw materials are the latest signs that inflation could be building rapidly.
While Fed officials state that they retain sufficient tools to control inflation, prominent economists voice concerns that the central bank may end up waiting too long before taking action.
There are many indicators that say the economy has picked up, but the policy hasn’t adjusted to that, according to Stanford University economist John Taylor.
“So I’m concerned that the Fed may get behind the curve so to speak, and not be able to react to the inflation,” he told The Epoch Times.
Taylor, who served as President George W. Bush’s undersecretary of Treasury for International Affairs from 2001 to 2005, doesn’t expect the Fed to take drastic action now but instead lay out a strategy for interest rates, money supply growth, and the asset purchase program.
“The sooner the better that the strategy is laid out. I think that would alleviate some of the concerns that people have about inflation,” he said.
The central bank signaled that it would keep the rates near zero through 2023, according to its March projections. It has also ruled out any tapering of asset purchases in the near term.
Since March 2020, the Fed has been pumping unprecedented amounts of money into the system by buying large sums of Treasury bonds and mortgage-backed securities in the market.
The M1 money supply measure shows a 336 percent increase in monetary growth over the past 12 months, fueling inflation fears.
In addition, global demand for raw materials is very strong relative to supply, causing commodities markets to rally in recent weeks. From lumber and grains to iron ore and copper, commodity prices are off the charts.
BY EMEL AKAN