The core consumer price index, which excludes food and energy, increased 6.6% from a year ago, the fastest pace since 1982. The broader gauge was up 8.2% from a year earlier.
Growing much faster than potential also helps explain why employers added 562,000 jobs a month on average in 2021 as the labor market recovered from a brief pandemic-induced recession.
The staff also said that unemployment was expected to rise more slowly than they previously estimated and stay below their estimate of a level of joblessness that won’t stoke inflation pressures until the end of 2025.
Nevertheless, inflation measured by the Fed’s preferred gauge was expected to be 2.6% next year, a remarkable deceleration from 6.2% in August. The minutes said the staff estimate is based on a view that supply and demand fall back into balance with lower energy prices.
“The staff has been relatively optimistic,” said William English, a professor at the Yale School of Management. “There is some evidence that suggests near term inflation expectations are getting built into wage inflation and that could perpetuate.”
English, who was previously ran the Fed’s powerful Division of Monetary Affairs, also pointed out that the economy appears fairly resilient, and the labor market may need to slow substantially to reduce demand and wage pressures.
“I see a federal funds rate that is going higher, an unemployment rate that is going higher, and a path of inflation that is going down slower” compared to what officials projected in their September forecasts, English said.
This article was provided by Bloomberg News.