Mon. Jul 26th, 2021

Federal Reserve Chairman Jerome Powell acknowledged Tuesday that some inflation pressures are stronger and more persistent than he had anticipated, though still not on par with some of the worst episodes the U.S. has seen historically.

Under questioning from a special House panel, the central bank leader continued to attribute most of the recent inflation surge to factors closely tied to the economic reopening.

Among them, Powell cited airline tickets, hotel prices and lumber along with generally surging consumer demand pumping up an economy that a year ago faced substantial government-imposed restrictions in the early days of Covid-19.

Those factors, he said, should “resolve themselves” in the coming months.

“They don’t speak to a broadly tight economy and to the kinds of things that have led to higher inflation over time,” he told the House Select Subcommittee on the Coronavirus Crisis. Powell’s mandated testimony provided an economic update and covered the pandemic-related tools Congress gave the Fed during the crisis.

“I will say that these effects have been larger than we expected, and they may turn out to be more persistent than we have expected,” he added. “But the incoming data are very consistent with the view that these are factors that will wane over time, and inflation will then move down toward our goals and we’ll be monitoring that carefully.”

Headline price inflation was up 5{85245cd25b56c80c5b7fbe16195da482b1a2d4d533fd90ff485ef932778890f3} year over year in May, the highest in nearly 13 years amid a jump in used car prices and a slew of other goods that have seen surging demand as restrictions have loosened.

The latest update on the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, comes Friday. The Dow Jones estimate is for a 3.4{85245cd25b56c80c5b7fbe16195da482b1a2d4d533fd90ff485ef932778890f3} year-over-year increase in May, higher than the 3.1{85245cd25b56c80c5b7fbe16195da482b1a2d4d533fd90ff485ef932778890f3} in April. If that estimate is correct, it would be the highest reading since April 1992.

Promises price stability

Committee Republicans repeatedly pressed Powell on whether the economy was headed toward the hyperinflation of the 1970s and early ’80s when inflation peaked above 10{85245cd25b56c80c5b7fbe16195da482b1a2d4d533fd90ff485ef932778890f3}.

Powell said such a scenario is “very, very unlikely.”

“What we’re seeing now, we believe, is inflation in particular categories of goods and services that are being directly affected by this unique historical event that none of us have ever lived through before,” he said.

Powell added that the current situation is being caused by “extremely strong demand for labor, goods and services” compounded by a “supply side caught a little bit flat-footed.” He pledged that the Fed would be vigilant in its role.