A recent article in Reuters reports that Federal Reserve officials are hopeful that a recent rise in U.S. bond yields and inflation expectations may indicate that its new monetary approach is “taking hold and could be further buoyed if a Democratic-led Congress rolls out more spending.”
The article cites comments from several Fed officials including Richmond Federal Reserve President Thomas Barkin, who said the recent rise in bond yields is part of a “reflation trade” —a sign that investors have factored in future hikes into their decision-making. It also quotes St. Louis Fed President James Bullard, “the ingredients for higher inflation are in place. You have very powerful fiscal policy in place and perhaps more to come.”
According to Barkin, the vaccine roll-out and the fiscal buffers that were put in place to help American households have left consumers, “ ‘not far away’ from the point when they will ‘engage in the economy with a lot more confidence.’ “
Philadelphia Fed President Patrick Harker weighed in: “We are looking at a long period where the fed funds rate will stay at essentially zero,” adding that he sees no signs that “inflation is going to go out of control.” San Francisco Fed President Mary Daly reportedly said she believes a stronger labor market will eventually give rise to higher inflation, although the upward pressure on prices due to tight job market conditions is likely weaker than it was in the past, making a sudden surge unlikely—which means the Fed can allow the job market to strengthen further than it otherwise might have.