- Powell has frequently noted that it took a decade after the 2008 global financial crisis for the US economy to return to full employment, while inflation consistently fell short of its target.
WASHINGTON: The Federal Reserve has committed to sustaining stimulus to the US economy until it has recovered from the Covid-19 pandemic, and is expected to remain firm in that stance when it concludes its policy meeting on Wednesday.
But as the accelerating vaccination campaign offers hope life can return to normal following the disruptions caused by the pandemic, the Fed has to face down growing concerns that surging economic activity will ignite uncontrolled inflation.
The central bank slashed the benchmark lending rate to zero in the early days of the crisis in March 2020 and then started pumping cash into the economy, moves that together with massive federal rescue spending were credited with preventing a worse downturn.
The Fed's policy-setting Federal Open Market Committee (FOMC) is expected to confirm that it will not raise rates or pull back those liquidity measures for some time when its decision is announced at 1800 GMT.
It will be up to Fed Chair Jerome Powell in his post-meeting press conference to once again try to beat back fears the central bank will lose control of prices.
After sharp declines in the early months of the pandemic as demand tanked when the economy shut down, the prices of many goods and services have spiked, exacerbated in some cases by supply issues.
Gasoline prices jumped in March as more commuters and travelers returned to the roads, and copper prices have surged and are close to surpassing the record of $10,190 per-tonne set just over a decade ago.
"It's a trend for the broader commodities. Lumber prices are up as well, tin prices are going crazy," ClipperData analyst Matt Smith told AFP.
"It's all about industrial metals and commodities used as an inflation hedge, as a bet on the economic recovery. Their value (increases) when interest rates are zero everywhere."
Powell said any spikes in the near term are likely to be transitory and policymakers will hold off on reacting until inflation has remained above the 2.0 percent target for an unspecified period of time.
Noted Harvard economist and former Treasury secretary Lawrence Summers has been the leading voice flagging concerns about the Fed's complacent attitude towards price increases.
In a seminar last week, Summers cited the old Fed maxim that its goal is to "take away the punch bowl before the party gets out of hand," and lamented that "what we are now saying is we are not going to do anything until we see a bunch of drunk people staggering around."
Powell has frequently noted that it took a decade after the 2008 global financial crisis for the US economy to return to full employment, while inflation consistently fell short of its target.
Responding to Summers' concerns, Diane Swonk of Grant Thornton said "the Fed is more focused on getting people off the sidelines and dancing than throwing a frat party.
"They have looked in the mirror and realized their past mistakes; preemptive rate hikes left the economy with a residual chill. The inflation they anticipated never materialized," she said in an analysis.