US Federal Reserve Chairman Jerome Powell on Tuesday responded to concerns from US Republican lawmakers about spiking inflation by reiterating his view that current price increases are likely to prove temporary.
Consumer prices last month jumped 5 percent from a year earlier, the largest increase in 13 years.
Republican members of the US House of Representatives have sought to blame higher inflation on US President Joe Biden’s US$1.9 trillion economic relief package, approved in March, in an effort to retake the House next year.
“The Biden inflation agenda of too much money chasing too few goods is causing major harm to hardworking families,” said US Representative Steve Scalise, the second-ranking Republican leader in the House.
Powell avoided participating in policy debates, despite attempts by Democratic and Republican lawmakers to draw him in.
However, he said in testimony before a congressional oversight panel that price gains mostly reflected temporary supply bottlenecks, and the comparison basis from last spring, the onset of the pandemic when prices sharply fell, makes current prices appear much higher.
Most of the price gains have occurred in categories such as used vehicles, airplane tickets and hotel rooms, Powell said, where demand has soared as the economy has quickly reopened, catching many companies flat-footed.
“Those are things that we would look to, to stop going up and ultimately to start to decline as these situations resolve themselves,” Powell said. “They don’t speak to a broadly tight economy — the kind of thing that has led to high inflation over time.”
“These effects have been larger than we expected and they may turn out to be more persistent than we expected,” he said.
However, the “incoming data are very much consistent with the view that these are factors that will wane over time and then inflation will then move down toward our goals,” he added.
Powell did not specify which data he was referring to, but the prices of many commodities, such as lumber, which had risen sharply during the COVID-19 pandemic, have tumbled in the past few weeks.
Powell’s comments come at a time when financial markets are struggling to interpret the Fed’s moves. Last week, Fed officials signaled that they might increase the central bank’s benchmark interest rate twice in 2023, an earlier time frame than they set out in March, when no rate hike was expected until after that year.
Last week, Powell also said that the Fed had formally begun discussing when and how the central bank might reduce its monthly purchase of US$120 billion of Treasury and mortgage-backed bonds.
Those purchases are intended to keep longer-term interest rates lower to encourage more borrowing and spending.
Both moves were seen as evidence that the Fed wanted to indicate that it is prepared to keep inflation in check, without initially taking any steps to pull back on its efforts to stimulate the economy.
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