Brace for a Long Battle With Inflation, Economists Say

That’s how many economists expect inflation to stay above pre-pandemic levels through 2023, according to a new poll. 

The Federal Reserve began its much-anticipated campaign to fight today’s scorching inflation by raising its benchmark interest rate last week, but it won’t be a quick or easy victory, by most indications. The poll, taken by the National Association for Business Economics in early March and released Monday, showed that most economists expect year-over-year increases in the Consumer Price Index to stay above 3% through next year. Thirty-six percent said it was “very likely,” and another 42% called it “likely.”

A forecast of more than 3% inflation doesn’t mean February’s 7.9% rate—a 40-year high—would last nearly that long, but it’s still well over the 2% range we’d gotten used to in the decade leading up to the onset of the COVID-19 pandemic. What’s more, 78% of survey respondents expect fallout from the war in Ukraine to worsen the supply chain problems that are contributing to inflation. 

In fact, many forecasts have underestimated inflation, and the outlook “deteriorated significantly this year even before Russia's invasion of Ukraine,” Federal Reserve Chair Jerome Powell admitted in a speech at a NABE conference in Washington, D.C. Monday.

“The expectation going into this year was that we would basically see inflation peaking in the first quarter then maybe leveling out and then seeing a lot of progress in the second half,” Powell said in the live-streamed speech. “That story has already fallen apart.” 

The unpredictable nature of the pandemic and the war complicate the Fed’s task of bringing the economy to a “soft landing,” Powell said. The goal is to lower inflation by raising borrowing costs, but not raise them so much that the U.S. goes into a recession.

“No one—no one—expects that bringing about a soft landing will be straightforward in the current context,” Powell said. “Very little is straightforward in the current context. And monetary policy is often said to be a blunt instrument, not capable of surgical precision. My colleagues and I will do our very best to succeed in this challenging task.”

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