Jerome Powell, Chairman of the Federal Reserve, warned lawmakers in Washington that the sources of the latest increase in inflation could last longer than previously predicted. Powell warning is part of a mandate testimony to be given to congress on Thursday.
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Inflation Warning
As reported by CNBC, Powell will deliver a speech to the Senate Banking Committee, in which he will warn on how increasing prices caused by supply chain constrictions are exerting pressure on an otherwise recovering economy.
Powell said, “Inflation is elevated and will likely remain so in coming months before moderating”.
“As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors.”
“These effects have been larger and longer-lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal.”
The mandated testimony Powell will give to Congress will also address the Fed’s response to the Covid-19 pandemic and its impact on the economy. “He will speak Thursday to the House Financial Services Committee.”
Inflation Pressures
After last week’s meeting, the Fed revealed it will shortly begin to taper on some of the stimulus implemented during the economic downturn. Still, “officials have stressed that the reduction of monthly asset purchases is not tantamount to looming interest rate hikes.”
“We at the Fed will do all we can to support the economy for as long as it takes to complete the recovery,” Powell said.
In the previous three years, inflation in the U.S. had shown an evident decline, a situation that changed this year as prices rose to the highest levels since 2008.
August inflation in those years reached 2.7%, 1.7%, and 1.3% respectively, but it shot up the same month this year to 5.3%, just lower than the 5.4% of the previous July.
The underlying inflation –that usually excludes food and volatile fuels– had also contracted, falling from 2.2% in 2018 to 1.7% in 2020. Nevertheless, it rose to 4% in August this year, and inflation expectations began to increase in April 2021, going from 3.4% to 5.2% for last month.
