What the Federal Reserve Chair Says About Current Inflation Rates

Inflation is “notably” up, according to Federal Reserve Chair Jerome H. Powell, but he notes it’s only a temporary spike. Powell told House lawmakers this week that inflation rates were expected to remain higher before seeing moderation, but there are no indications that recent price hikes will cause policy changes. Since June 2020, the Consumer Price Index increased 5.4%, a much larger change than previously expected. Powell said inflation rates resulted from the economy reopening and are only tied to a “small group” of goods and services, reports the New York Times.

Mr. Powell attributed the continuing pop in prices to a series of factors: temporary data quirks, supply constraints that ought to “partially reverse” and a surge in demand for services that were hit hard by the pandemic.

He said longer-run inflation expectations remained under control — which matters because inflation outlooks help shape the future path for prices. And he made it clear that if the situation got out of hand, the Fed would be prepared to react.

“We are monitoring the situation very carefully, and we are committed to price stability,” Mr. Powell said. He added that “if we were to see that inflation were remaining high and remaining materially higher above our target for a period of time — and that it was threatening to uproot inflation expectations and create a risk of a longer period of inflation — then we would absolutely change our policy as appropriate.”

For now, the Fed chair voiced comfort with the central bank’s relatively patient policy path even in light of the hotter-than-expected price data. He said that the labor market was improving but that “there is still a long way to go.” He also said the Fed’s goal of achieving “substantial further progress” toward its economic goals before taking the first steps toward a more normal policy setting “is still a ways off.”

Fed officials are debating when and how to slow their $120 billion of monthly government-backed bond purchases, which would be the first step in moving policy away from an emergency mode. Those discussions will continue “in coming meetings,” Mr. Powell said.

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