Federal Reserve Chair Jerome Powell will warn lawmakers Wednesday that inflation is likely to remain high for months before cooling down, in the wake of hotter-than-expected price increases in May and June.
“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell says in his prepared testimony to the House Financial Services Committee.
Both the Fed and the Biden administration have said rapid price increases are being stoked by temporary factors, such as hiccups in the faster-than-expected reopening of the economy. But Powell hadn’t previously indicated how long he thinks that what he calls “transitory” inflation might last.
His remarks suggest that while the central bank still sees the pace of price increases as temporary, they could last a while. Treasury Secretary Janet Yellen said in May that she expects inflation to remain elevated through the end of the year.
On Tuesday, the Labor Department reported that the consumer price index rose 5.4 percent in June from the same month last year, the biggest jump since 2008 and higher than expected, feeding fears that the Fed might have to intervene sooner than projected.
In his testimony, Powell reiterates that the Fed would begin removing some of its economic support “if we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal” of an average 2 percent inflation over time.
However, he gave no sign that the central bank is planning to act imminently to slow its massive purchases of U.S. government debt and mortgage-backed securities, saying the country is “still a ways off” from making enough progress toward the central bank’s goals, which include maximum employment.
Despite record-high job openings, the unemployment rate was 5.9 percent in June, “and this figure understates the shortfall in employment,” given how many people are on the sidelines of the workforce right now, he says.
“Job gains should be strong in coming months as public health conditions continue to improve and as some of the other pandemic-related factors currently weighing them down diminish,” according to Powell.
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