Powell: Fed “Not at All Sure” Inflation Will Fade Next Year | national

WASHINGTON (AP) – In a further sign of his growing concerns over inflation, President Jerome Powell said on Wednesday that the Federal Reserve cannot be sure that price increases will slow in the second half of next year, as many economists expect this.

Powell told the House Financial Services Committee that most economists consider the current price spikes, which have sent consumer inflation to a three-decade high, largely in response to the persistent supply and demand disruptions caused by the pandemic. As Americans spent more time at home, they increased their spending on furniture, appliances, and laptops. The growing demand for these products, combined with shortages of parts, has resulted in a supply chain growls and higher prices.

In the past, Powell, who was appointed last week for a second four-year term by President Joe Biden, has frequently expressed his belief that these imbalances between supply and demand should ease as the pandemic subsides, which would reduce inflation. But on Wednesday, he said that while such an outcome is “likely”, it is only a forecast.

“The point is, we can’t act like we’re sure about it,” he said. “We’re not at all sure. Inflation has been more persistent and higher than expected.”

At the same hearing on Wednesday, Treasury Secretary Janet Yellen clashed with many Republicans on the committee, who accused the Biden administration’s overspending as a major contributor to the high inflation. According to them, the administration’s proposed $ 2,000 billion social and environmental spending bill would further accelerate inflation.

“It’s the trillions of dollars this Congress and this administration is spending that are putting jet fuel on the fires of this economy,” said Rep. Patrick McHenry of North Carolina, the committee’s senior Republican. “It makes things worse. “

Yellen countered that the new spending would take place over a decade and be paid off, reducing its inflationary impact. She also argued that the administration’s proposals to spend more on child care subsidies, universal early childhood education and the child tax credit would make it easier for many women to return. at work after having children. Their return, Yellen said, would help address labor shortages that contribute to higher inflation.

The Treasury Secretary also defended the administration’s $ 1.9 trillion financial aid program, approved last March, and said it was “at most” a “small contributor.” rising prices, which she said was mainly due to supply chain bottlenecks.

The Financial Aid Bill “put money in people’s pockets, helped meet the expenses they had and contributed to strong demand in the US economy,” Yellen said .

Powell’s last remarks came a day after he signaled a sharp shift to a credit crunch faster than the Fed previously reported. The Fed chairman said on Tuesday that it would be “appropriate” for the central bank to consider stepping up its reduction in bond purchases at its next meeting in mid-December. This step would pave the way for the Fed to hike its key rate next spring.

Stock prices fell after Powell’s comments. Low interest rates have been one of the main drivers for the stock market to peak during the pandemic. Recovered actions most of those losses in midday trading Wednesday.

Powell also downplayed the sharp wage hikes this year as something that could further boost inflation, suggesting he is yet to see a wage-price spiral developing. In the 1970s, as prices rose steadily, workers could demand higher wages to meet higher costs. Yet companies then raised their prices to cover the higher wages, prolonging the worst wave of inflation since World War II.

“We love to see wages go up,” said Powell. “At this point, we don’t see them increasing at an alarming rate that would tend to trigger higher inflation, but it’s something we’re watching very carefully.”

On Tuesday, Powell said he was prepared to “withdraw” the use of the word “transient” to describe inflation. Instead, he said “the risk of higher inflation has increased”.

Powell also on Tuesday elevated tackling inflation to a more urgent priority than supporting job growth, noting that rising prices themselves threaten economic recovery. A long period of growth, he said, is needed to regain the “great job market” that existed before the pandemic.

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