Andrew Levin, who served as a special adviser during Yellen‘s tenure at the Federal Reserve Board, said Wednesday (17) that the Federal Reserve Board’s Inflation expectations are too “optimistic” and that the inflation rate is likely to be 2.5% or even 2.75% by the end of 2021.
Levin said before the Federal Reserve Board meeting: “In fact, the six-month personal consumption expenditure (PCE) core inflation rate of more than 2% per year, so the Federal Reserve Board’s annual inflation forecast of 2.2% is a little too optimistic.”
Levin believes that if inflation continues to rise, the core inflation rate could reach 2.5% or even a level of 2.75%. So the Federal Reserve needs to communicate more clearly on policy, how high inflation should be tolerated if the economy continues to recover, and have contingency plans in case of a slowdown. He is currently a professor of economics at Dartmouth College.
Levin’s comments may cause further anxiety in the market, according to the Bank of America (BofA) this week’s fund manager opinion survey, nearly 40% of hedge fund managers now believe that inflation is the biggest “tail risk” facing the stock market.
The Federal Reserve Board announced on Wednesday to maintain the target interest rate at a level close to zero, and reapply the commitment to purchase debt, according to the latest release of the interest rate chart shows that seven of the 18 members of the U.S. Federal Open Market Council (FOMC) officials believe that the Fed will raise interest rates at least once in 2023. In December last year, only five officials predicted a rate increase by the end of 2023.
In addition, the U.S. GDP will grow 6.5% in 2021, the unemployment rate will fall to 4.5%, while the inflation rate will reach 2.2%. Three months ago the Federal Reserve Board predicted that the unemployment rate will be 5% at the end of this year, while the inflation rate will not reach 2% until 2023.
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