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The Fed: Fed’s Kashkari thinks inflation will slow down markedly this year

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Minneapolis Federal ReservePresident Neel Kashkari said Wednesday that he thinks U.S. inflation will slow down markedly as the year progresses.

“Inflation should start coming down this year. My guess is…we’re not going to be back to our 2% target by the end of this year. But, by the end of this year, we should be well on our way back towards that,” Kashkari said, during a virtual town-hall discussion with John Howard, the CEO of United Natural Foods Inc..

The Fed’s favorite inflation measure – the personal consumption expenditure price index – was running at a 5.8% annual rate in December. A separate measure of consumer price inflation hit a 7.5% rate in January, it’s highest level in 40 years.

Kashkari noted that most private forecasts expect inflation will fade to around a 3% annual rate by the end of the year. “Just the math of that suggests inflation should start coming down over the course of the year,” he said.

“If you have a one-time boost to prices that is painful for families that have to pay it, but that does not mean you have inflation at very high rates of inflation year after year after year at very high rates,” he said.

The Minneapolis Fed president, one of the most dovish Fed officials but not a voting member of the Fed’s interest-rate committee this year, said that his inflation outlook would change if supply-chain bottlenecks persist or another variant of the coronavirus spreads across the country.

“We’re going to watch the data over the next six months to see are we in fact headed in that direction,” he said.

The yield of the 10-year Treasury note
TMUBMUSD10Y,
2.044%

has risen steadily this month to above 2%, its highest level since mid-2019.

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