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Washington (AFP) – A wave of price increases that has complicated the United States’ recovery in the middle of the pandemic may last longer than anticipated, according to Federal Reserve Chairman Jerome Powell, who warned on Tuesday of the threat of “high and persistent inflation” in the country.
For months, the head of the Fed (central bank) has described the explosion of inflation as “transitory”, arguing bottlenecks in the supply chain and the shortage of goods and workers. However, this Tuesday he told the Senate Banking Commission that it is time to “withdraw” that term.
The central bank’s benchmark price indicator posted a 5% rise in the 12 months ending in October, well above the Fed’s 2% target.
“Clearly, the risk of more persistent inflation has increased,” Powell told lawmakers.
But he said the Fed “will use its tools to make sure higher inflation doesn’t take hold.”
The Fed has already begun to withdraw its stimulus measures put in place to cushion the blow of the pandemic on the economy, but Powell, whom President Joe Biden had nominated last week for a second term at the head of the central bank, had Said previously shown patience regarding raising interest rates, arguing that supply problems would be resolved in the coming months.
However, at this hearing he suggested that the pace of withdrawal from monthly asset purchases could be accelerated. That would mean that the Fed would be in a position to raise the benchmark interest rate earlier than expected.
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Interest rate escalation
At its last meeting, the Federal Reserve decided to start reducing its monthly bond purchases, which at the current rate would end in mid-2022.
However, since then the data has shown “high inflationary pressures, a rapid improvement in many labor market indicators” and “strong spending,” indicating “significant growth in the coming months,” Powell said.
That is why it is “appropriate, from my perspective, to consider ending the decline in our asset purchases … perhaps a few months earlier.”
The Fed cut the benchmark lending rate to zero at the start of the pandemic, and Powell has said they won’t raise rates until the bond-buying program ends.
A growing group of Federal Reserve officials have publicly supported ending bond purchases more quickly, with one or two rate hikes next year, while some private economists are advocating three hikes.
Globally, Powell has acknowledged that central bankers did not take into account the impact bottlenecks in the supplement chain would have on prices in their predictions.
These global drawbacks have caused shortages in a variety of products, while pent-up demand for goods also contributed to the price explosion.
© 2021 AFP
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