Federal Reserve Chair Testifies Before Congress

“While they’ve seen a faster-than-expected rise in inflation, there is still compelling evidence that this is transitory,” said Michelle Meyer, head of U.S. economics at Bank of America. That was part of the message Mr. Powell was trying to emphasize, she said, while “trying to make clear that the Fed is not being irresponsible.”

The Fed chair was asked about rising inflation repeatedly during testimony on Wednesday before the House Financial Services Committee, and that continued into Thursday. Republicans in particular questioned the Fed’s super-supportive monetary policies, which include interest rates close to zero and large purchases of government-backed debt, and they raised concerns about inflation. Democrats largely played down the latest price numbers and focused instead on the number of workers who have still not rejoined the labor force.

Mr. Powell has maintained that fast price gains are likely to moderate with time, and he has attributed the rapid pickup to factors tied to the economy’s reopening — a message he reiterated this week. He pointed out that the gains were tied to just a few pandemic-affected categories, like automobiles and recovering leisure and hospitality industries, rather than being broad. But he also made clear that the Fed was monitoring the pop carefully.

“It’s not tied to the things that inflation is usually tied to — which is a tight labor market, a tight economy,” Mr. Powell said. “This is a shock going through the system associated with the reopening of the economy, and it’s driven inflation well above 2 percent, and of course we’re not comfortable with that.”

He said officials think about the higher inflation, and how they interpret it, “night and day.”

But he noted that there were risks to overreacting to temporary inflation when millions of people remained out of work, since changes to the Fed’s policies could interrupt the economy’s rebound before the return to work was complete.

Article source: https://www.nytimes.com/2021/07/15/business/economy/federal-reserve-inflation.html