Fed chairman Powell describes inflation as “frustrating” and sees it running into the next year

Federal Reserve Chairman Jerome Powell testifies during a Senate Banking, Housing and Urban Development Committee hearing on CARES on September 28, 2021 at the Hart Senate Office Building in Washington, DC, United States.

Kevin Dietsch | Reuters

Federal Reserve chairman Jerome Powell still believes inflation will ease at some point, but said Wednesday that he sees current pressures continue through 2022.

Looking at the current economic situation, the Fed chief said during a panel discussion hosted by the European Central Bank that he was “frustrated” that vaccinating people and curbing the spread of the Covid Delta variant “remains the most important economic policy we have to have. “

“It’s also frustrating to see that the bottlenecks and supply chain issues aren’t getting better – in fact, margins are apparently getting a bit worse,” he added. “We see that this is likely to continue into next year and inflation will hold up longer than we thought.”

Fed rate inflation is at its hottest pace in about 30 years. Powell and most of his colleagues believe current pressures will ease back on trend as supply chain bottlenecks ease and demand returns to pre-pandemic levels. He said on Wednesday that 2022 should be “a pretty strong year” for economic growth.

However, officials have recently admitted that current inflationary conditions have not eased Fed expectations. The Federal Open Market Committee jointly raised its forecast for core inflation in 2021 from 3% in June to 3.7% last week.

“The current surge in inflation is really a consequence of supply constraints meeting very strong demand, and it is all linked to the reopening of the economy, a process that will have a beginning, a middle and an end,” said Powell.

“We’re seeing these things work themselves out,” he added. “It is very difficult to say how big these effects will be in the meantime or how long they will last.”

Powell’s continued expectations that inflation will be temporary were confirmed by European Central Bank President Christine Lagarde, along with Powell, Bank of England Governor Andrew Bailey, and Bank of Japan Governor Haruhiko Kuroda sat on the podium.

“We are monitoring this very carefully, but we certainly have no reason to believe that these price increases that we are seeing now will not be largely temporary in the future,” said Lagarde.

If it doesn’t, Powell said the Fed is ready to act. Central bank officials have already indicated that they tend to reduce their monthly security purchases by the end of the year, although interest rate hikes are not expected until late 2022 at the earliest.

“Of course, I would tell you that if we saw inflation persistently higher and that raised serious concerns, the FOMC would certainly respond, and we would use our tools to ensure inflation stayed at a level that is consistent with coincides with our goal, ”said Powell.

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