Fed's Bostic warns inflation surge 'will not be brief' amid wild consumer price spikes

Atlanta Federal Reserve President Raphael Bostic warned Tuesday that a recent burst of inflation is unlikely to dissipate anytime soon as pandemic-driven supply constraints continue to trigger wild swings in consumer prices.

"It is becoming increasingly clear that the feature of this episode that has animated price pressures — mainly the intense and widespread supply chain disruptions — will not be brief," Bostic said while speaking to the Peterson Institute of International Economics. "Data from multiple sources point to these lasting longer than most initially thought. By this definition, then, the forces are not transitory."

Inflation has accelerated as the economy recovers from last year's brief but extremely severe recession. Jerome Powell, the chairman of the U.S. central bank, has largely attributed the spike in consumer prices to pandemic-induced disruptions in the supply chain, a shortage of workers that's pushed wages higher and a wave of pent-up consumers flush with stimulus cash.

SURGING INFLATION COULD DERAIL ECONOMIC RECOVERY FROM PANDEMIC, IMF WARNS

Powell has maintained the rise in inflation is likely "transitory" and has warned about the dangers of the Federal Reserve acting superfluously to lower the benchmark federal funds rate. Projections from the Fed's rate-setting meeting predicted an annual inflation rate of 4.2% by year's end, an increase from 3.4% in June. Policymakers projected that inflation will cool to about 2.2% next year, closer in line with their goal range.

But Bostic, a voting member of the Fed's rate-setting committee next year, disagreed with that sentiment: He said that inflation risks are not starting to diminish and noted that evidence is mounting that price pressures have "broadened beyond the handful of items most directly connected to supply chain issues or the reopening of the services sector."

"The real danger is that the longer the supply bottlenecks and attendant price pressures last, the more likely they will shape the expectations of consumers and businesspeople, shifting their views on pricing and wages in particular," he said.  

CONSUMER PRICES SURGE 5% ANNUALLY, MOST SINCE AUGUST 2008

Still, Bostic said he believes that many of the upward pricing trends caused by the pandemic will "unwind by themselves," though he cautioned that supply chain disruptions could last longer than expected.

"Up to now, indicators do not suggest that long-run inflation expectations are dangerously untethered," he said. "But the episodic pressures could grind on long enough to unanchor expectations."

Bostic's comments come as Fed policymakers weigh how and when to begin exiting the ultra-easy monetary policies put in place during the pandemic. Officials – who have been trying to grapple with surging inflation but relatively lackluster job growth – hinted during their September meeting that they could begin tapering their monthly $120 billion in asset purchases as soon as next time. 

GET FOX BUSINESS ON THE GO BY CLICKING HERE

In a separate interview with The Financial Times, Bostic said that timeline should not shift, despite the worse-than-expected September jobs report, which saw the U.S. add a meager 194,000 jobs compared to the 500,000 projected. 

"I’d be comfortable starting in November," he said in the interview. "I think that the progress has been made, and the sooner we get moving on that the better." 

FOX Business' Edward Lawrence contributed to this report.