Jerome H. Powell, the Federal Reserve chair, is set to tell House lawmakers that inflation has increased “notably” and is poised to remain higher in coming months before moderating — but he will make no indication that the recent jump in prices is pushing central bankers to rush to change policy.
The Fed chair will attribute high inflation numbers to factors tied to the economy’s reopening from the pandemic, based on the text of his prepared remarks. He will offer no precise estimate for when or how much price pressures will ease.
Mr. Powell’s testimony before the House Financial Services Committee on Wednesday, starting at noon, will come at a fraught moment politically and economically when it comes to inflation. The Consumer Price Index spiked by 5.4 percent in June, the biggest jump since 2008 and a larger move than economists had expected. Price pressures appear to be poised to last longer than policymakers at the White House or Fed had expected.
“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Mr. Powell is prepared to say.
He will explain that today’s higher inflation comes from temporary data quirks, rising prices on goods and services facing supply constraints that ought to “partially reverse,” and prices for services that were hard-hit by the pandemic and are now experiencing a demand surge. He will also note that longer-run inflation expectations remain under control — which matters because inflation outlooks help to shape the future path for prices.
Expectations “have moved up from their pandemic lows and are in a range that is broadly consistent with the F.O.M.C.’s longer-run inflation goal,” Mr. Powell said, referring to the policy-setting Federal Open Market Committee.
The Fed chair’s prepared remarks make no indication that the path for policy will change based on the hotter-than-expected price data. Instead, he will say that labor market conditions are improving but that “there is still a long way to go” and that the Fed’s goal of achieving “substantial further progress” toward its economic goals before taking the first steps toward a more normal policy setting “is still a ways off.”
Fed officials are debating when and how to slow their $120 billion of monthly government-backed bond purchases, which would be the first step in moving policy away from an emergency mode. Mr. Powell said those discussions will continue “in coming meetings.”
The central bank is also maintaining its policy interest rate at near-zero, which helps to keep borrowing cheap for consumers and businesses. Officials have set out a higher standard for lifting rates: They want the economy to return to full employment and inflation to come in on track to average 2 percent over time.
Raising rates is not yet up for discussion, officials have said publicly and privately.
Mr. Powell said the Fed’s current approach means that “monetary policy will continue to deliver powerful support to the economy until the recovery is complete.”
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