Jason Furman, a professor at Harvard who previously was chairman of the Council of Economic Advisers under Obama and on the National Economic Council under Clinton, said on Tuesday’s episode of CNBC’s “Squawk Box” that the issue of inflation won’t go away any time soon and that he doesn’t see it falling “much below 3% this year.” Without a severe recession, I don’t see it falling below that. Nothing about the January CPI gives him any comfort either, especially when you consider that the core inflation rate includes “certain special items that were helpful” that you can’t count on continuing.
“I believe the markets are just ludicrously naïve about the inflation picture right now,” Furman added. “When I check at swaps and tips, I find that their break-even inflation rates are also around 2%. I simply can’t see that. I don’t think we will have much inflation this year below 3%. Without a severe recession, I don’t see it falling below that. And nothing about this number makes me feel better. Compared to the previous narrative of one month ago, in which we thought inflation was declining and in which we thought it was accelerating from a low point, we now have core inflation this month at an annualized rate for January of 5.1%, even if you remove housing, which has lagged, along with used cars, the super core, you’re at an yearly rate of 4.3% for this month. That is a faster rate than the two-month average. And that is in conjunction with some unique assistance. We found more relief there than we had anticipated, and medical services also decreased. You cannot anticipate that these events will continue to occur. This means that I believe the inflation problem to be real, that I believe it won’t go away very soon, and that I believe anyone who is unduly composed about it makes me uncomfortable.”
Furman added, “Look, the inflation rate was 9%. It has been reduced to 6.4. A very high number, 6.4. The idea that 9% would endure was never entertained. Furthermore, most of us underestimated the level of inflation at this period by a significant margin (6%). It doesn’t make me feel better that it’s down from nine.”
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