WASHINGTON – The economy is growing at a healthy pace, and that has sped up inflation, Federal Reserve Chairman Jerome Powell said in written testimony to be delivered Tuesday at a congressional watch hearing.
Yet Powell reiterated his view that the recent surge in inflation to a 13-year high is temporary.
“Inflation has risen dramatically in recent months,” Powell said in the prepared remarks. He blamed the rise on several factors, including the sharp drop in prices last year at the start of the pandemic, which made inflation numbers today, compared to a year ago, appear much higher. high. Higher gas prices and rapidly rising consumer spending as the economy reopens, coupled with supply bottlenecks, have also contributed to the rising costs.
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“As these transient supply-side effects ease, inflation should fall back towards our longer-term target,” said Powell, referring to the 2% inflation rate that the Fed typically targets. Currently, however, the Fed is looking to push inflation slightly above 2% to compensate for the roughly nine years it has fallen below that level.
Powell’s remarks follow a meeting of the Fed’s policy-making committee last week, when central bank officials signaled that they could now raise the Fed’s benchmark interest rate to two. times in 2023. This is earlier than the schedule set in March, when no rate hike was expected before 2023.
Powell also said the Fed has officially started discussing when and how the central bank could cut the current $ 120 billion a month in treasury bills and mortgage-backed bonds that the Fed buys each. month.
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These two measures were seen as proof that the Fed wanted to signal that it was ready to control inflation without initially taking any action to undo its efforts to stimulate the economy.
Powell will testify to a Congressional watchdog panel on Tuesday on the Fed’s unprecedented measures last year to provide extraordinary support to financial markets at the start of the pandemic, including the first purchases of corporate bonds in the history of the Fed.
Meanwhile, some Fed officials are also making it clear that they are prepared to raise interest rates even sooner. St. Louis Federal Reserve Chairman James Bullard said on Friday he was in favor of a rate hike in 2022.
This caused a strong stock market liquidation. Higher interest rates generally make stocks less attractive to investors and make bonds a more attractive investment.
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But on Monday, New York Federal Reserve Chairman John Williams, who is also vice chairman of the Fed’s policy-making committee, said that while the economy is improving rapidly, “conditions won’t have not progressed enough for the (Fed) to modify its monetary policy, a policy of strong support for the economic recovery. “
“I expect that as the price reversals and short-term imbalances of the reopening of the economy occur, inflation will drop from around 3% this year to almost 2% in the year. next year and into 2023, ”said Williams.
US stocks recovered most of their losses from Friday Monday.