Businesses Do Not Think Fed Will Get Bidenflation Under Control Soon

Federal Reserve officials have their work cut out for them persuading businesses that they can bring inflation under control in the coming year.

The Federal Reserve Bank of Atlanta’s measure of business expectations for inflation showed that on average firms in February expect to raise prices 3.6 percent, a significant increase.

This measure has been climbing steadily for over a year now, taking a brief breather last summer when the Delta variant triggered a surge in Covid-19 infections. The Fed’s pivot to removing accommodation late last year and expectations that the Fed will raise its interest rate target in March has not calmed inflation.

Some economists, including many at the Fed, think that inflation expectations have a powerful influence on the direction of prices. As consumers and businesses expect more inflation, they seek to raise their own prices (or, in the case of workers, wages) to keep up with rising costs.

Prices of derivatives that allow investors to speculate on the Fed’s next move currently show a 56 percent chance of a fifty-basis point hike at the March meeting. A basis point is one-hundredth of a percent. That is twice as large of a hike as many Fed watchers were expecting as the year began.

The survey covers businesses in the Sixth District of the Federal Reserve system, which includes Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee.