Federal Reserve officials are increasingly wary that the country’s reopening after years of Covid lockdowns could stoke demand for inflation-driving commodities.
Federal Reserve officials are increasingly wary that the country’s reopening after years of Covid lockdowns could stoke demand for inflation-driving commodities like energy and food, undercutting their efforts to tame the biggest price spikes in four decades.
“There’s an argument — which I’m probably, at this point, more in the camp of … that says, inflation will be persistent longer than we’d like it to be,” Richmond Fed President Thomas Barkin said in an interview. A prominent reason: “The reopening of China’s going to put pressure on commodity prices.”
“It frankly is the biggest factor that people are looking at,” said Andrew Lipow, head of Houston-based oil market consulting firm Lipow Oil Associates. China is the world’s largest economy in terms of purchasing power, and two-way trade with the U.S. hit a record $690 billion in 2022, showing how deeply intertwined the two countries remain, though some of that increase is attributable to inflation.
But global demand will also be affected by what’s happening outside of China where many major economies including the U.S. are raising borrowing costs and could see economic slowdowns this year.
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