Powell Says Fed Policy Will Adapt Amid Risk of Persistent Inflation

Powell Says Fed Policy Will Adapt Amid Risk of Persistent Inflation
© Reuters. Powell Says Fed Policy Will Adapt Amid Risk of Persistent Inflation

(Bloomberg) — Federal Reserve Chair Jerome Powell said the risks of persistent elevated inflation have “clearly risen” and monetary policy would evolve in response.

“Policy has adapted to that and will continue to adapt,” Powell told the House Financial Services Committee on Wednesday. “We’ve seen inflation be more persistent. We’ve seen the factors that are causing higher inflation to be more persistent.”

Powell on Tuesday told the Senate Banking Committee it would be “appropriate” to discuss whether the central bank should wind up its asset purchases at a faster pace given heightened inflation risks. He also said he wanted to retire the word “transitory” to describe price increases, and indeed in his written remarks, which were repeated to the House panel Wednesday, he said inflation pressures will “linger well into next year.”

Powell and Treasury Secretary Janet Yellen are testifying this week as part of Congress’s oversight of pandemic aid.

The U.S. central bank is currently scheduled to complete its asset-purchase program in mid-2022 under a plan announced at the start of November to slow buying by $15 billion a month. The next gathering of the policy-setting Federal Open Market Committee is Dec. 14-15, where they could make a decision to accelerate the tapering.

U.S. central bankers are trying to decide how to manage the highest annual inflation rates in three decades against a labor market that hasn’t fully healed from the massive unemployment caused by Covid-19 last year.

“The inflation that we’re seeing is still clearly related to pandemic-related factors,” Powell said. “I would also add, though, that it has spread more broadly in the economy and I think that the risk of persistent higher inflation has clearly risen.”

(Updates with Powell quote in final paragraph.)

©2021 Bloomberg L.P.

 

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