Powell: Progress toward full employment, 2% inflation is

Powell: High inflation temporary, will ‘wane’Federal Reserve Chair Jerome Powell on Tuesday responded to concerns from Republican lawmakers about spiking inflation by reiterating his view that current price increases will likely prove temporary. (June 22)APFederal Reserve Chair Jerome Powell plans to tell Congress Wednesday that “substantial further progress” toward the Fed’s goals of full employment and 2% inflation “is still a ways off,” suggesting the central bank may not be close to reducing massive bond purchases that are holding down long-term interest rates.“While reaching the standard of ‘substantial further progress’ is still a ways off, participants expect that progress will continue,” Powell said in written testimony he’s scheduled to deliver at noon before the House Financial Services Committee. “We will continue these discussions in coming meetings” and provide advance notice before announcing a decision to cut the bond purchasesPowell added that while the labor market has improved from the damage inflicted by the COVID-10 pandemic as the economy reopens, “there is still a long way to go.”At its mid-June meeting, a split was evident between Fed policymakers who believe the recent surge in inflation is temporary and those concerned it could last into next year because of supply-chain bottlenecks and worker shortages that are pushing up wages, according to minutes of the meeting. As a result, “various” Fed officials said they expect the conditions for starting to taper down the pace of the purchases will be met “somewhat earlier” than they had anticipated.The Fed is buying $120 billion a month in Treasury bonds and mortgage-backed securities to push down long-term interest rates, such as for mortgages, in an effort to support economic growth. But annual inflation hit 5.4% in June, a 13-year high, the Labor Department said Tuesday. The surge in prices in recent months is prompting some Fed officials to strongly consider pulling back the Fed’s stimulus campaign sooner rather than later.Many economists expect the Fed to announce the tapering later this year and begin reducing the bond purchases in early 2022.At the meeting, the Fed held its key interest rate near zero but officials also forecast two hikes in 2023, up from none previously, amid a strong recovery from the coronavirus recession and the spike in inflation.The prospect of an earlier-than-expected decrease in bond purchases and a sooner rate hike has rattled some investors and contributed to a volatile stock market recently. The Fed has been saying repeatedly that it wouldn’t raise its benchmark rate until the economy returns to full employment and inflation has risen above the central bank’s 2% target “for some time.”Powell’s plans to assure Congress Wednesday that tapering is “still a ways off,” could signal that he and other key policymakers aren’t yet prepared to reduce the bond purchases and are awaiting more economic data in coming months.In his prepared testimony, Powell said inflation “will likely remain elevated in coming months before moderating.” He attributed the jump in prices partly to a big drop a year ago as consumer demand evaporated in the early days of the pandemic, resulting in a comparatively large price increase. But he said that would disappear as last year’s rock-bottom prices fall out of the equation.He also cited price increases because of the supply constraints, “which should partially reverse as the effects of the bottlenecks unwind.”Powell also said that “conditions in the labor market have continued to improve, but there is still a long way to go.” Although labor demand is “very strong,” with job openings at a record high and employers adding 1.7 million jobs from April through June, the unemployment rate remains “elevated at 5.9%,” Powell said. Even the 5.9%, he said, “understates the shortfall in employment” because many Americans have stopped looking for jobs.Many are caring for relatives or are still fearful of contracting COVID even though the pandemic has eased significantly. Others may be reluctant to give up enhanced unemployment benefits before they expire nationwide in September.Wobbly recovery?: Is the economy’s big comeback starting to fade?What’s your pitch?: Lowe’s and Daymond John launch new round of ‘Shark Tank’-like contest with grants for diverse businessesThe economy’s rebound, though still robust, has slowed recently, in part because many businesses don’t have the products and workers they need to serve customers. Meanwhile, fueled by the delta variant, COVID-19 cases have increased in states with low vaccination rates. That poses another threat that could temper a recovery that’s still expected to produce robust growth. Oxford Economics recently lowered its growth forecast for this year from 7.7% to 7%, which would still be the economy’s strongest performance since 1984.


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