Fed’s Powell warns inflationary supply chain problems could persist – .

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Fed’s Powell warns inflationary supply chain problems could persist – .


Four of the world’s leading central bankers have warned that supply bottlenecks are likely to last longer than expected and said they are watching for unfulfilled signs of them spawning a self-fulfilling cycle of a expected higher inflation and wage increases.

Jay Powell, chairman of the US Federal Reserve, said it was “frustrating” that supply chain bottlenecks were holding back the recovery of the world’s largest economy and had helped fuel pressures on companies. higher prices as they intensified.

“The combination of strong demand for goods and bottlenecks has meant that inflation is well above target,” Powell said during a panel with European Central Bank President Christine Lagarde, the governor of the Bank of England Andrew Bailey and the Governor of the Bank of Japan Haruhiko Kuroda on Wednesday. . “We expect it to continue to do so over the next few months before moderating as the bottlenecks ease. “

His warnings echoed similar comments from Lagarde, Bailey and Kuroda, who pointed to uncertainties that further cloud the economic outlook due to the supply disruption and the more contagious Delta variant.

Lagarde said bottlenecks “appeared to be accelerating in some areas” such as container shipping and semiconductors. She added: “How long will these bottlenecks take to clear up is a question we are watching very closely and it is on our radar screen.” “

Fuel shortages in the UK, which have kept some people from refueling, show signs of easing, Bailey said, adding that ending the UK holiday program this week could help shortages on the labor market. But he said UK economic output may not return to pre-pandemic levels until the start of next year – “a few months later” than expected.

As the global economy recovered from the impact of the coronavirus pandemic, inflation rose faster than many central bankers had expected, due to soaring energy prices, resurgent demand, delays in the delivery of goods, and shortages of materials and products.

“What people didn’t see coming were the constraints on the supply side. . . it was a surprise, ”said Powell. “It’s not that our inflation models are wrong, although they are certainly not perfect, but only the magnitude and persistence of the constraints on the supply side have been missed. “

Central banks have said many of the factors behind the acceleration in price growth are temporary and are expected to fade over the next year. But some economists wonder if some of these inflationary pressures might last longer than expected.

Kuroda said Japanese manufacturers were struggling to keep up with growing demand, especially for tech products, and that there was no sign of this easing anytime soon. “The demand is increasing so rapidly that the supply cannot fully keep up with the rapidly increasing demand,” he said. “This is likely to drag on for a bit. “

Several Western central banks, including the Fed and the Bank of England, have recently reported a move towards tightening monetary policy in response to stronger growth and higher inflation. Norway’s central bank hiked interest rates last week, alongside similar moves in Pakistan, Hungary, Paraguay and Brazil.

Powell said on Wednesday that the Fed stands ready to act in case inflation turns out to be more “substantial” than expected, and reiterated that the central bank was “about” to start cutting its purchasing program. assets of $ 120 billion. “I think we are looking at the normalization process in a cautious way,” he added.

Lagarde said the eurozone economy had “come back from the brink, but not completely out of the woods” as she reiterated her view that there are no signs of supply chain disruptions fueling “second round effects” such as significantly higher wage demands.

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