Fed’s Powell Says High Inflation Is Temporary And Will “Diminish”

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FILE - Federal Reserve Chairman Jerome Powell, right, testifies before the Senate Banking Committee on Capitol Hill in Washington, Tuesday, December 1, 2020. The economy is growing at a healthy pace, and this has accelerated l inflation, Federal Reserve Chairman Jerome Powell said in written testimony to be delivered on Tuesday, June 22, 2021 at a congressional oversight hearing.  (AP Photo / Susan Walsh, Pool)

FILE – Federal Reserve Chairman Jerome Powell, right, testifies before the Senate Banking Committee on Capitol Hill in Washington, Tuesday, December 1, 2020. The economy is growing at a healthy pace, and this has accelerated l inflation, Federal Reserve Chairman Jerome Powell said in written testimony to be delivered on Tuesday, June 22, 2021 at a congressional oversight hearing. (AP Photo / Susan Walsh, Pool)

PA

Federal Reserve Chairman Jerome Powell responded to Republican lawmakers’ concerns about rising inflation on Tuesday by reiterating his view that current price increases are likely to be temporary.

Consumer prices jumped 5% in May from a year earlier, the biggest increase in 13 years. Republican members of the House have sought to blame the rising inflation on President Joe Biden’s $ 1.9 trillion economic relief package, approved in March, with a view to recapturing the House next year.

“Biden’s inflation agenda of spending too much money on too little property is causing major harm to hard-working families,” said Louisiana Representative Steve Scalise, the second Republican House leader.

Powell has avoided participating in such political debates, despite attempts by Democrats and Republicans to entice him.

But he said in testimony to a congressional watchdog panel that recent price gains mainly reflected temporary supply bottlenecks, and the fact that prices fell sharply last spring at the start of the pandemic. , which makes the inflation figures now, compared to a year ago, seem much bigger.

Most of the price hikes have occurred in categories such as used cars, airline tickets and hotel rooms, said Powell, where demand has skyrocketed as the economy rapidly shrank. reopened, catching many businesses by surprise.

“These are things we would expect, to stop going up and eventually start to decline as these situations resolve themselves,” Powell said. “They are not talking about a globally tight economy – the sort of thing that has led to high inflation over time.”

Powell acknowledged that “these effects were greater than expected and could prove to be more persistent than expected.” But he added that “the incoming data is quite consistent with the view that these are factors that will decrease over time and that inflation will then decrease towards our targets.”

The Fed chairman did not specify what data he was referring to, but the prices of many commodities, such as wood and copper, which had risen sharply during the pandemic, have plummeted in recent weeks.

Powell’s comments come at a time when financial markets are struggling to interpret recent moves by the Federal Reserve. Last week, Fed officials signaled they could hike the central bank’s benchmark interest rate twice in 2023, earlier than expected in March, when no rate hike was expected. was expected before that year. The Fed’s benchmark rate changes affect a wide range of consumer borrowing costs, such as mortgages, credit cards, and student loans.

Powell also said last week that the Fed officially began discussing when and how the central bank could cut the current $ 120 billion a month in treasury bills and mortgage-backed bonds that the Fed buys. These purchases aim to keep long-term interest rates lower to encourage more borrowing and spending.

These two measures were seen as proof that the Fed wanted to signal that it was ready to control inflation without initially taking any action to undo its efforts to stimulate the economy.

Some Fed officials are not fully convinced that inflation is temporary. St. Louis Fed Chairman James Bullard said on Monday the economy was in unprecedented territory, making it difficult to know where inflation will go next. But he added that “we have to be prepared for the idea that there are upside risks to inflation, (it) could go higher” than the 2.5% rate he forecast for. next year.

Yet other officials echoed Powell’s views. Also on Monday, New York Federal Reserve Chairman John Williams, who is also vice chairman of the Fed’s policy making committee, said that currently high inflation is likely transitory.

“I expect that as the price reversals and short-term imbalances of the reopening of the economy occur, inflation will drop from around 3% this year to almost 2% in the year. next year and into 2023, ”Williams said.



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