Federal Reserve officials are reiterating that single data points will not sway the central bank’s patience on its easy money policies.
Inflation data on Wednesday morning showed consumer prices increasing at the fastest rates in over 10 years. But Fed Vice Chairman Richard Clarida said later in the morning that he was “surprised” by the reading but unmoved from a policy perspective.
“This is one data point, as was the labor market report,” Clarida said, referencing the weaker-than-expected April jobs report. “But over time, we’ll be taking signal from this data and it’s going to be very important that any pressures to inflation that arise be transitory.”
Consumer Price Index data from the Bureau of Labor Statistics on Wednesday reported prices rising 0.8% month-over-month in April, or 4.2% over the last 12 months. The BLS said that was the largest 12-month increase since September 2008.
Clarida said the fresh data has not made the Fed any closer to pulling back on its aggressive asset purchases or near-zero interest rates, noting that the economy still has “not made substantial further progress.”
Evercore ISI noted Wednesday that the Fed may not see much significance in inflation data until later this year.
“[T]he Fed is inclined in our view to look through the near-term inflation data and assign relatively little signal to it,” said Evercore ISI analysts Krishna Guha and Peter Williams.
For months, Fed officials have cautioned that inflation readings would be eye-popping — but only temporarily.
One reason supporting the “transitory” view on inflation: year-over-year measures look high because they’re being compared to the early pandemic months in 2020, when prices collapsed.
“That will cause inflation to pop in the next several months, probably through the end of the year,” San Francisco Fed President Mary Daly told Yahoo Finance on Monday.
Daly predicted that inflation would rise above the Fed’s 2% inflation target this year (the Fed’s preferred measure of inflation is not CPI but core Personal Consumption Expenditures (PCE), a separate data release).
Cleveland Fed President Loretta Mester similarly expects inflation to end the year above its target.
“But then next year, as those supply constraints are eased, inflation numbers will go back down,” Mester told Yahoo Finance on Tuesday.
Still, Fed officials are open to the possibility that their baseline forecasts end up wrong, in which case they could raise rates to cool off rising prices.
“If they’re not [transient], we would use our tools to bring inflation to our 2% longer-run goal,” Clarida said Wednesday.
The central bank’s next policy-setting meeting is scheduled to take place June 15 and 16.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.