Powell Says Inflation, While High, Is Likely To Moderate | News, Sports, Jobs
WASHINGTON (AP) – Federal Reserve Chairman Jerome Powell said on Wednesday that inflation, which has risen as the recovery strengthens, “Will probably remain high in the coming months” before “Moderate”.
At the same time, in his testimony to the House Financial Services Committee, Powell did not point out any imminent changes in the Fed’s ultra-low interest rate policies.
The Fed chairman reiterated his long-held view that the high inflation rates in recent months have been largely due to temporary factors, including supply shortages and growing consumer demand as the restrictions commercial activities linked to the pandemic are lifted.
Still, members of the House have been dotting Powell with questions about rising inflation in recent months, with some voicing concerns that prices will continue to accelerate. The President replied that the Fed would not respond to short-term price spikes by raising rates and risking weakening the economic recovery.
“By inflation, we mean, year after year, prices increase”, said Powell. “If something is a one-time price increase… you wouldn’t react to something that is likely to go away. “
Powell’s remarks coincided with growing concerns, among economists as well as ordinary households, that intensifying inflationary pressures are creating a burden on many people and posing a potential threat to the recovery from the pandemic recession. On Wednesday, the government announced that wholesale prices, paid by businesses, jumped 7.3% in June from a year earlier. This is the fastest 12-month increase among records dating back to 2010.
And on Tuesday, the government said prices paid by U.S. consumers rose the most in June in 13 years. This is the third month in a row that consumer inflation has jumped. Excluding food and energy price volatility, core inflation rose 4.5% in June, the fastest pace since November 1991.
Much of the rise in consumer prices was due to categories that reflect the reopening of the economy and associated supply shortages. Used car price increases accounted for about a third of the increase. The prices of hotel rooms, plane tickets and car rentals have also increased significantly.
“It’s always the same story we see”, said Powell. “It’s a pretty small group of things that produce these high (inflation) readings.”
But some increases could persist. Restaurant prices rose 0.7% in June, the largest monthly increase since 1981, and were up 4.2% from a year ago. These price increases are likely to offset rising wages and food costs as restaurants scramble to fill jobs.
The Fed has said it will keep its short-term benchmark rate close to zero until it estimates maximum employment has been reached and annual inflation moderately exceeds 2% for a while. Central bank policymakers have said they are prepared to accept inflation above its target to offset years of inflation below 2%.
Powell said on Wednesday that the economy is ” still far “ to do the “Further substantial progress” that policymakers want to see before they start cutting their $ 120 billion monthly bond purchases. These purchases aim to keep long-term borrowing rates low to encourage borrowing and spending.
He was asked to clarify what the Fed means by “Further substantial progress”.
“It’s very difficult to be precise about this”, Powell responded. “We haven’t tried to write a particular set of numbers that would capture what we mean by that.”
At its last meeting in June, Fed policymakers began discussing a reduction in such purchases, and Powell said on Wednesday that those discussions “Will continue … in future meetings.” “
Powell added that the Fed could adjust its policies if inflation, or public expectations for inflation, “Moved materially and constantly beyond levels compatible with our objective”. Americans’ inflation expectations are important because they can become self-fulfilling. If consumers expect higher prices, they usually demand higher wages in response.
Firms can then increase prices further to offset the increase in wages.
The president was addressing the House committee on Wednesday as part of his biannual report on monetary policy to Congress. On Thursday, he will testify before the Senate Banking Committee.
In his testimony, Powell was optimistic about the economy, with growth on track “to post its fastest rate of increase in decades.” He said the hiring was “robust” but noted there “Is still a long way to go” with a high unemployment rate of 5.9%.
At their last meeting last month, Fed officials predicted they could hike their short-term benchmark rate twice by the end of 2023, a timeframe earlier than they previously indicated. .
Powell, whose tenure as Fed chairman ends in February, garnered bipartisan praise Wednesday during questioning of House members. President Joe Biden could announce as early as this fall whether he intends to reappoint him for another four-year term.
“You have earned and deserved another term as chairman of the Federal Reserve. “ Rep. Patrick McHenry, a Republican from North Carolina, told him. “You have proven to be a firm hand throughout this pandemic or this ongoing recovery. “
Representatives Andy Barr, a Republican from Kentucky, and Brad Sherman, a Democrat from California, echoed the idea that Powell should be reappointed. The Senate is expected to confirm it for a second term. Although Powell enjoys broad bipartisan support, some progressive groups oppose his renewal because he oversaw the relaxation of some regulations governing large banks.
On another topic, Powell said the Fed would release research into the central bank’s potential to issue a digital dollar in early September. A digital currency would allow faster payments between banks, consumers, and businesses and potentially allow Americans to hold dollars in electronic wallets on smartphones without the need for an account at a conventional bank.
Powell said a digital dollar would be more efficient than having many cryptocurrencies and stablecoins issued by companies such as Facebook. A stablecoin is a digital currency backed by cash.
“I think that’s one of the strongest arguments in its favor – that… you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had an American digital currency,” he said.