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Powell says the federal government still expects inflation to ease – News

Federal Reserve Board Chair Jerome Powell said the central bank would not hesitate to raise interest rates to keep inflation under control, but expects price pressures to ease later this year. Was repeatedly emphasized.

“Inflation is higher than expected and is a little more sustained,” Powell said in a semi-annual report to Congress on Wednesday.His appearance was made by the government Fastest monthly rise in consumer prices in 13 yearsDue to special factors, mainly due to semiconductor shortages that are reducing the supply of automobiles.

Pandemic bottlenecks and other supply constraints have created a “perfect storm of high demand and low supply.” Rapid price increases for certain products and services, He said. Higher inflation “should partially reverse as the effects of bottlenecks disappear.”

Powell’s remarks reaffirmed his view that inflation was likely to be temporary, even in the light of Tuesday’s report, but the Fed turned out to be wrong in inflation forecasts. More clearly acknowledged that there is a possibility of doing so. “We want to see inflation go through, like everyone else,” he said.

Powell also said the Fed didn’t rush to buy $ 120 billion in Treasury securities or mortgage securities each month.Bank Governor of some Feds Shows that they are eager to start shrinking Purchase them.Other Fed officials have proposed a central bank Don’t hurry..

At a Federal Reserve Board meeting, two weeks later, “there is another round of discussion on this topic,” he said at a three-hour hearing, repeatedly grilled by lawmakers. Powell did not suggest that the decision was imminent.

The Fed has kept interest rates near zero since the coronavirus pandemic hit the US economy in March 2020. The central bank says it will maintain interest rates until inflation maintains its 2% target and is confident that the labor market will recover. Or it has returned to what it calls “maximum employment.”

The central bank is also committed to continuing to buy bonds until it achieves “substantial further progress” towards its inflation and employment goals.

Inflation in the United States has reached its highest level in 13 years, causing debate over whether it is entering a period of inflation similar to that of the 1970s. WSJ’s Jon Hilsenrath is looking at what consumers can expect next.

Powell said the economy “is still a long way off” as it reaches that standard, but authorities expect progress to continue.

The Fed and many private sector forecasters expected inflation to rise this year as a surge in consumer spending clashed with pandemic-related shortages and bottlenecks, but inflation measurements over the past three months have been strong. It exceeds many expectations. Inflation is expected to fall, but questions remain as to how fast and how much inflation will fall compared to the Fed’s 2% target.

The Ministry of Labor reported on Tuesday that its consumer price index rose 5.4% in June year-on-year. Excluding the unstable food and energy categories, prices rose 4.5% year-on-year, the highest in 30 years.

Powell said he could raise interest rates to deal with the temporary rise in prices of certain services, such as air travel and hotel fares, or the soaring prices of goods, such as new and used cars. An economy that said it was a failure.

“Honestly, it would be a mistake to do it when virtually all forecasters believe that these things will go down on their own initiative,” Powell said. “It would be a mistake to act prematurely.”

“Risks can be reversed,” he said.

If inflation remains too high or begins to permeate consumer and business expectations of future inflation, it can be self-fulfilling and the Fed raises interest rates. “People need to trust the central bank to do what we do,” Powell added.

Investors and federal officials are working on the implementation of the new policy framework announced in August 2020, as well as an unexpected explosion of price pressure. Authorities are vague about exactly what the acceptable period or magnitude of inflation above target is.

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The recent surge has caused unexpected problems for the Fed as inflation has far exceeded its target. “Inflation isn’t modestly above 2%. It’s well above 2%. It’s not like’moderate’,” Powell said. The question facing the Federal Reserve Board is, “When inflation goes down as expected, where will this leave us in six months or so?”

Increasingly, there is growing debate about how much inflation will fall and where it will settle, compared to the Fed’s 2% target. Even if supply pressure recedes, authorities may have to sort out whether demand pressure from the expanding economy will raise or stabilize wages and prices at appropriate levels.

“It’s correct that this is temporary,” said Stephen Blitz, chief US economist at research firm TS Lombard. “But it’s as big as they think. It won’t happen, ”Blitz said, expecting stronger wage increases next year and a more traditional inflation cycle.

At the Fed’s meeting last month Most officials predicted that interest rates would need to be raised It is most expected to raise the benchmark rate by 0.5 percentage points from near zero by 2023. Some are expected to increase in price next year. This forecast surprised many investors, as most officials expected to stabilize interest rates until 2023 in March.

For months, Powell has used pre-pandemic employment levels as a guide to what might meet the practical definition of “maximum employment.”But Federal Reserve Monetary Policy ReportAnnounced last Friday, authorities have suggested that they may be less confident about the possibility of returning to the labor market situation in February 2020 without accepting higher inflation.

Powell will present the Fed’s semi-annual monetary policy report to members of the House Financial Services Commission on Wednesday and will resubmit it to the Senate Banking Commission on Thursday.

Write to Nick Timiraos [email protected]

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