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Economic Brief

Sept. 28, 2021

Examining Recent High Inflation and the Fed’s Repo Market Tools

The Richmond Fed's newest two Economic Briefs dig into topics that are receiving considerable attention: high recent inflation and Fed tools for the repo market.

In the first Economic Brief, “How Broad-Based is the Recent High Inflation,” economist Alexander L. Wolman notes that the annualized PCE inflation rate over the period of March through July was 6.5 percent, the highest five-month rate in about 40 years. He explains that inflation can fluctuate even during stable periods due to supply and demand shocks for specific consumption items. If those shocks are large enough, inflation can be high even if most consumption items are having normal price changes.

He notes that the contributions to inflation of the highest price increases were indeed large from March through June of this year, when monthly inflation rates were especially high. In July, large price increases no longer played an outsized role in accounting for inflation, yet inflation was still higher than the Fed’s 2 percent target. He says if this pattern continues, it would represent tentative evidence that the increase in inflation is a more persistent phenomenon that reflects monetary factors and will not dissipate without an adjustment to monetary policy.

In the second Economic Brief regarding the Fed’s involvement in the repo market, economists Huberto Ennis and Jeff Huther discuss the Fed’s new Standing Repo Facility, which complements the Overnight Reverse Repo program put in place in 2013. They note that the establishment of these programs flip the parameters of the Fed’s engagement in the repo market. Previously, the Fed’s borrowing and lending costs in this market were largely based on market conditions at the time of operations, and the amount of borrowing or lending by the Fed was determined by the Fed itself. These programs now mean the Fed sets the prices, and market participants determine the amounts.

The Richmond Fed’s Economic Brief series provides essays on economic issues and trends. Sign up to receive an email notification when a new essay is posted.


As part of our nation’s central bank, the Richmond Fed is one of 12 regional Reserve Banks working together with the Board of Governors to support a healthy economy and deliver on our mission to foster economic stability and strength. We connect with community and business leaders across the Fifth Federal Reserve District — including the Carolinas, District of Columbia, Maryland, Virginia, and most of West Virginia — to monitor economic conditions, address issues facing our communities, and share this information with monetary and financial policymakers. We also work with banks to ensure they are operating safely and soundly, supply financial institutions with currency that’s fit for distribution, and provide a safe and efficient way to transfer funds through our nation’s payments system.


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