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World

US inflation to remain high for months before falling: Fed's Powell

  • Inflation has surged in recent months, with the annual consumer price index hitting 5.4 percent in June, the highest since August 2008.
14 Jul 2021

WASHINGTON: US inflation will remain "elevated" in coming months but will decline once supply bottlenecks and other temporary issues are resolved, Federal Reserve Chair Powell said Wednesday.

But the world's largest economy still has "a long way to go" to return to full employment following the Covid-19 pandemic, Powell said in his semi-annual testimony to Congress.

The Fed "will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete," he said.

Inflation has surged in recent months, with the annual consumer price index hitting 5.4 percent in June, the highest since August 2008.

But Powell and other Fed officials have stuck to their argument that the high rate has been driven mostly by temporary issues related to the struggles to reopen the economy following the pandemic shutdowns and is not a reason to pull back on stimulus efforts.

Many private economists agree, but Powell is likely to face tough questions from members of the House Financial Services Committee in the hearing that begins at 1600 GMT. He is due to appear again Thursday before the Senate Banking Committee.

"Inflation has increased notably and will likely remain elevated in coming months before moderating," Powell said in his prepared testimony.

He cited the impact of supply issues including a global semiconductor shortage that has hindered auto production, and said those factors "should partially reverse as the effects of the bottlenecks unwind."

The Fed cut the benchmark lending rate to zero right at the start of the pandemic and implemented a massive bond-buying program to provide liquidity to the economy during the crisis.

Central bankers have pledged to maintain the stimulus until inflation holds above the two percent goal and the labor market has recovered.

But while job gains are expected to continue, Powell said "reaching the standard of 'substantial further progress' is still a ways off."

Fed officials have begun to discuss when they will start to taper the $120 billion a month in asset purchases, and Powell again pledged to give advance notice before making any changes.

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