Chairman of the Federal Reserve, Jerome Powell, admitted on Tuesdaythat some inflation pressures are higher and more persistent than he hadexpected, while they are still not on par with some of the worst periods in UShistory.
Under questioning from a special House committee, the central bankchief continued to blame the majority of recent inflation increases on factorsrelated to the economic recovery.
Powell noted airline fares, hotel prices, and lumber prices, as wellas generally growing consumer demand, for boosting an economy that facedsignificant government-imposed limitations a year ago in the early days ofCovid-19.
Those issues should "resolve themselves" in the nextmonths, he said.
He told the House Select Subcommittee on the Coronavirus Crisis,"They don't speak to a broadly tight economy and the kinds of things thathave contributed to increased inflation over time." Powell's requiredtestimony included an economic update as well as information on thepandemic-related tools Congress handed the Fed during the crisis.
“These effects have been larger than we anticipated, and they mayturn out to be more enduring than we anticipated,” he continued. “However, theincoming data are very consistent with the notion that these are factors thatwill fade with time, and inflation will then move closer to our goals, whichwe'll be closely monitoring.”
In May, headline price inflation was up 5% year over year, the mostin nearly 13 years, thanks to an increase in used car prices and a plethora ofother commodities that have experienced increased demand as limitations havebeen eased.
The core personal consumption expenditures price index, the Fed's favoredinflation gauge, will be updated on Friday. In May, the Dow Jones forecasts a3.4 percent year-over-year growth, up from 3.1 percent in April. It would bethe highest measurement since April 1992 if that assessment is right.
Price Stability Is Guaranteed
Republicans on the committee grilled Powell on whether the economywas headed for hyperinflation like that saw in the 1970s and early 1980s, wheninflation topped 10%.
According to Powell, such a scenario is "veryimplausible."
“What we're seeing now, we believe, is inflation in specificcategories of products and services that are directly influenced by thisone-of-a-kind historical event that none of us has ever experienced,” he said.
Powell went on to say that the current situation is the result of"very robust demand for labor, products, and services," compounded bya "supply side caught a little bit flat-footed," and that the Fedwill play a vigilant role.
“You have a central bank that is committed to price stability, hasdefined what price stability is, and is ready to utilize its powers to keepinflation around 2%,” he said. “All of these indicators point to an episodesimilar to the one we experienced in the 1970s... I don't expect anythingsimilar to happen.”