WASHINGTON, July 14 — US monetary policy will offer “powerful support” to the economy “until the recovery is complete,” Federal Reserve Chair Jerome Powell said today in remarks that portrayed a recent jump in inflation as temporary and focused on the need for continued job gains.
Addressing concerns that inflation posed new risks of its own, Powell said the pace of price increases “will likely remain elevated in coming months before moderating,” language that indicated he saw no need to rush the shift towards post-pandemic policy. Long-term inflation expectations, he said, remained consistent with the Fed’s 2 per cent inflation target.
Powell is likely to be questioned about that issue as well as the Fed’s outlook on inflation, the labour market and the economic recovery during two days of testimony in Congress.Faster-than-anticipated inflation and a new rise in coronavirus infections due to the Delta variant pose a potential dilemma for Powell, pulling the outlook for policy in opposite directions.
In a report to Congress last week, the Fed said that as the “extraordinary circumstances” of the reopening subside, “supply and demand should become better aligned, and inflation is widely expected to move down.
When Powell last spoke about the economy at a news briefing after the end of the June 15-16 policy meeting, new daily coronavirus infections were falling toward recent lows, and the Fed dropped language from its policy statement that the pandemic “continues to weigh on the economy.”