Fed chief: Inflation to rise in 2021, ranging from 2.5% to 3%

Inflation is expected to be higher this year, between 2.5% and 3%, said James Bullard, president of the Federal Reserve Bank of St. Louis. Bullard expects the rate to be about 2.5% in 2022.

In a recent CNBC interview, Bullard discussed inflation, jobs data and GDP growth. The St. Louis Fed is located in the Eighth Federal Reserve District, which includes Arkansas and portions of six other states.

The higher inflation rate can be attributed, in part, to the Federal Reserve’s strategy to be less preemptive than in the past because it’s trying to make up for misses to the low side of its 2% inflation target, he said. Some of the inflation is transitory but not all of it, he added, as the Fed works to hit its target.

“They’ve been slumping down below the target over the last decade, and we want to reinforce our inflation target,” Bullard said. “We want to get inflation expectations up.”

He’s encouraged by the Fed’s policy for inflation to be above 2% over the next two years and longer-term.

On the labor market, Bullard doesn’t expect significant job growth amid the ongoing pandemic and with people yet to be vaccinated. Bullard compared the COVID-19 vaccination rate to the S-curve of technology adoption: Vaccinations rose rapidly at first but have since slowed. However, in the United States, COVID cases and fatalities are falling.

“I think that bodes very well for the U.S. economy and our ability to reopen and put the pandemic behind us,” he said.

The economy is growing rapidly, exceeding trends in the first quarter, and expectations for second-quarter GDP growth range between 8% or 9%, he said. The growth is expected to be above trend into 2022.

Also, he noted the unemployment to jobs openings ratio was slightly more than 1, which is one of the lowest readings and as good as it was in previous expansions. Companies are reporting challenges to hire employees, he said.

Regarding U.S. monetary policy, he said it shouldn’t be changed while the United States remains in the pandemic even though its end is in sight.