The post-pandemic economy could mean more “inflationary headwinds,” says a Fed Bank president

Federal Reserve Bank President Thomas Barkin said post-pandemic changes in the economy could potentially lead to more inflationary headwinds, requiring tighter monetary policy.

Speaking Monday at a Fed conference on technology-enabled disruption, Barkin hypothetically questioned what it would mean if the disinflationary forces that previously helped the Fed reach its 2% inflation target changed.

“What if we find ourselves in a new era – one where we face inflationary headwinds?” Barkin said in his prepared remarks. “History is perhaps less of a precedent for appropriate policy. This pressure could make it harder to see through short-term shocks. They could make incremental rate hike paths less effective.”

Barkin spoke of the forces that led to the US’s long period of low inflation and said it was premature to call the end of the era.

“Never count disinflationary forces,” he warned.

Still, he noted that geopolitical risk has changed energy availability, demographic trends are now less favorable, and companies may prioritize resilience over efficiency.

“As a result, our efforts to stabilize inflation expectations may require periods of tightening more than our recent pattern has been,” Barkin said. “You could imagine yourself leaning against the wind.”

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