https://www.theepochtimes.com/fed-chairman-jerome-powell-to-tell-congress-inflation-likely-to-stay-elevated-over-next-few-months_4020209.html

Federal Reserve Chairman Jerome Powell is set to appear at a hearing on Sept. 28 where he will tell Congress that inflation is likely to stay elevated over the next few months.

Powell will speak Tuesday morning before the Committee on Banking, Housing, and Urban Affairs, in Washington, D.C. as part of a mandated testimony regarding the Fed’s economic response to the COVID-19 pandemic.

In a prepared speech, published by the Federal Reserve on Tuesday, Powell notes that the “economy has continued to strengthen” and conditions in the labor market have also enhanced.

Real gross domestic product also “rose at a robust pace in the first half of the year,” while its expected that growth will continue at a strong pace for the remainder of the year.

Sectors that were the hardest-hit by the pandemic have also improved, Powell said, but an increase in COVID-19 cases has slowed recovery.

At the start of the year, household spending also rose at a rapid rate but has since dropped off in “COVID-sensitive sectors” while some industries have suffered from supply constraints.

Despite a seemingly optimistic outlook on the overall economy, Powell notes a surge in inflation due to supply chain bottlenecks, hiring difficulties, and other challenges related to the reopening of the economy, could prove to be “greater and more enduring” than expected.

If these various issues continue, this could pose “upside risks to inflation.”

“Inflation is elevated and will likely remain so in coming months before moderating,” Powell said. “As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors. These effects have been larger and longer lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal.”

Powell stressed that the Federal Reserve would use its various tools, such as raising interest rates, if “sustained higher inflation were to become a serious concern.”

The Federal Reserve chairman pointed to COVID-19 vaccinations, stating that continued progress in administering vaccines can help support the economy to return to its pre-pandemic conditions.

“We at the Fed will do all we can to support the economy for as long as it takes to complete the recovery,” Powell said.

The Federal Reserve and many economists have long-maintained that the recent spike in inflation is “transitory,” and merely reflective of the ongoing effects of supply chain breakdowns during the pandemic and shifts in consumer demand as more activities such as travel become safer again.

However, it’s expected they will announce the tapering of asset purchases in November and begin the process a month later, in an attempt to address building inflationary pressures.

Other experts, such as economic historian Niall Ferguson, aren’t so hopeful and have warned that inflation could be repeating the trajectory of the late 1960s, which set in motion sustained high inflation in the following decade.

Speaking to CNBC on Sept. 3, Ferguson said that policymakers are now facing a new challenge in the form of rising inflation after responding to the COVID-19 pandemic in a manner similar to the 2008 global financial crisis.

He called into question the Fed’s statement regarding the “transitory” inflation spike, and noted that an “inflation liftoff would be a problem.”

“How long is transitory? At what point do expectations fundamentally shift, especially if the Federal Reserve is telling people, ‘we have changed our inflation-targeting regime and we don’t mind if inflation goes above target for a while?’” Ferguson said.

“My sense is that we are not heading for the 1970s but we could be re-running the late 1960s, when famously the Fed Chair then, McChesney Martin, lost control of inflation expectations.”

Katabella Roberts

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Katabella Roberts is a reporter currently based in Turkey. She covers news and business for The Epoch Times, focusing primarily on the United States.

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