Atlanta Federal Reserve Bank President Dennis Lockhart said Wednesday that the recent spike in inflation is "more likely to be transitory than persistent," although he called latest CPI data a "high and worrisome" number. He predicted that inflation will moderate from current levels following the "temporary" impact of high food and energy prices.
Speaking at an Economic Outlook Conference at Georgia State University in Atlanta, Lockhart said that although "the aggregate inflation we are experiencing in the United States at the moment is uncomfortably high," it is near its peak.
The Atlanta Fed President said that he thinks both headline and core inflation will fade in the second half of 2008. He called the effects of soaring food and energy prices "temporary," and predicted that CPI inflation will "peak near the July level of 5.6 percent."
Lockhart predicted that there will be only "partial" relief from the decline in oil prices.
"I expect the recent decline in oil prices will begin to reverse some of the pressures we have seen on overall inflation in the first half of the year," he said in prepared remarks. "But the underlying global supply pressures remain tight, and demand pressures remain relatively high."
"As such any relief will likely be only partial," he added.
Lockhart's comments appeared to be dovish compared to remarks on the same topic by Dallas Federal Reserve Bank President Richard Fisher Tuesday. In an interview with Dow Jones Newswires, Fisher cautioned that, despite the decline in energy prices, inflation could continue to rise in the second half of 2008 as the economy slows to a near standstill.
In the interview, Fisher appeared very concerned about inflation and its impact on consumer spending. He issued one of the most direct warnings from the Federal Reserve of the danger of persistent inflation, presenting a stagflation-like scenario of slow growth and high inflation as consumers cut back on spending when faced with higher prices.
Fisher said that there is a "50/50" chance that inflation will be more than a "one off event," hinting that he is "concerned" that price expectations will embed themselves into the economy, weighing down on consumers.
Lockhart did not comment on the economic outlook in his remarks, instead focusing on inflation.
However, others in the Federal Reserve, including Chairman Ben Bernanke, have viewed the recent pullback in energy prices as a development that will likely temper inflation expectations as the economy sheds some of the weight that record oil prices have placed on it.
Fisher called the slide in energy prices "encouraging," but he approached the issue with cautious optimism.
"I think it's too early to take comfort in these reversals," he added.
On the Federal Reserve's recent policy decisions, Lockhart said, "My belief is that the Fed has undertaken tactically prudent actions to help move the economy through a difficult transition in line with the larger strategic goals of sustainable growth, low and stable inflation over the long term, and financial stability."
Lockhart noted that the FOMC is limited in the actions they can take to reduce energy prices. He noted that even hiking rates would still leave energy prices "expensive relative to other goods and services.
"Also, energy would still be expensive relative to wages whose dollar values likely would decline because of policy actions that restricted growth in the entire economy," the Atlanta Fed President said.
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