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Jay Powell Says Fed Is Ready To Step In If US Inflation Gets Out of Control

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Jay Powell, the chairman of the Federal Reserve, said the Federal Reserve was ready to intervene if inflation spiraled out of control, but emphasized that he expected price increases to slow down later in the year.

“Inflation has risen significantly and is likely to remain high in the coming months before moderating,” Powell said in prepared remarks released Wednesday ahead of a hearing in the House’s financial services committee.

He added that the Fed “would be willing to adjust the stance of monetary policy if necessary if we see signs that the path of inflation or longer-term inflation expectations would materially and persistently move beyond levels seen in the past.” are consistent with our purpose”.

Powell’s comments followed data on the US consumer price index rose 5.4 percent in June compared to a year ago, rekindling concerns that the US economy may be overheating.

The numbers could pressure the U.S. central bank to move more quickly toward slowing down the large amounts of monetary support it provided to the economy during the pandemic, starting with a cut in its $120 billion in monthly assets. – purchases.

Although Powell noted the higher inflation numbers and insisted that the Fed should not be complacent about rising prices, he maintained his view that the rise in inflation was largely temporary, which is shared by many central bank officials.

“Inflation is being temporarily driven up by base effects, as last spring’s sharp pandemic-related price falls are outside the 12-month calculation,” Powell’s comments said.

In addition, strong demand in sectors where production bottlenecks or other supply constraints have curtailed production has led to particularly rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks wear off.

“Prices for services hard hit by the pandemic have also risen in recent months as demand for these services has increased with the reopening of the economy,” he added.

During the hearing, Powell will likely be pressured by Republican lawmakers to explain the Fed’s stance on the issue inflation. Republicans are increasingly criticizing the White House and Democrats for fueling rising inflation and a higher cost of living through the $1.9 Trillion Incentive Legislation March passed.

Some also accuse the Fed of being complacent in the face of higher prices, and are calling for monetary stimulus to be removed quickly.

But many Fed officials are wary of acting too quickly to withdraw support for the economy. The US job market is still a long way from pre-pandemic employment levels, and the impact of the coronavirus crisis on a global scale may still pose risks to the US economy.

The U.S. government debt expanded its rally after Powell’s testimony was released, with the 10-year benchmark trading more than 0.4 percentage points lower to 1.37 percent on the day.

Short-term government bonds, which are more sensitive to policy adjustments, also gained. The yield on two-year bonds fell by almost 0.02 percentage point to 0.23 percent.

At its June meeting, the Fed launched a debate on the timing and terms for curtailing his asset purchases, but Powell suggested a decision was not imminent. The Federal Open Market Committee said it would need to see “substantial further progress” compared to last December on its full employment and price stability targets to make the move.

“While reaching the standard of ‘substantial further progress’ is still a long way off, participants expect progress to continue,” the Fed chairman said in his prepared remarks. “We will continue these discussions in upcoming meetings. As we have said, we will give you advance notice before announcing a decision to make changes to our purchases.”

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