Podcast: Forward Look into Inflation

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Inflation: What Lies Ahead?

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Wharton’s Itay Goldstein speaks with Wharton Business Daily on SiriusXM about how the Federal Reserve may respond to the recent rise in inflation.

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The latest rise in the inflation rate to 4.2% for April 2021 has fueled expectations that the Federal Reserve could raise interest rates and tighten monetary policy. The rise in the consumer price index for all items is the largest 12-month increase since a 4.9% increase in September 2008, the U.S. Bureau of Labor Statistics (BLS) reported earlier this month.

In recent times, the Federal Reserve has been willing to accommodate higher inflation, but that stance could change with the unexpected pace of price increases in the latest data. “The Fed sent pretty clear and strong messages over the last year or so that it is not going to be deterred by signs of inflation, and that it’s going to keep a loose monetary policy and keep [interest] rates down,” said Wharton finance professor Itay Goldstein in an interview on the Wharton Business Daily radio show on SiriusXM. (Listen to the podcast at the top of this page.)

That position could now change as the inflation data for April “was quite alarming,” Goldstein continued. “No one really expected the number for inflation to be that high. So now we start seeing more expectation that maybe the Fed will eventually act and start raising rates and tighten monetary policy.” The federal funds target rate serves as the benchmark for bank interest rates and is currently in the range of 0% to 0.25%. The Federal Reserve has said it expects to keep its benchmark interest rate near zero through 2023.  ... "