WASHINGTON (Reuters) – Federal Reserve Chair Jerome Powell on Wednesday pledged “powerful support” to complete the U.S. economic recovery from the coronavirus pandemic, but faced sharp questions from Republican lawmakers concerned about recent spikes in inflation.
In testimony to the U.S. House of Representatives Financial Services Committee, Powell said he is confident recent price hikes are associated with the country’s post-pandemic reopening and will fade, and that the Fed should stay focused on getting as many people back to work as possible.
Any move to reduce support for the economy, by first slowing the U.S. central bank’s $120 billion in monthly bond purchases, is “still a ways off,” Powell said, with millions of people who were working before the crisis still to be pulled back into the labor force.
“The high inflation readings are for a small group of goods and services directly tied to the reopening,” Powell testified, language that indicated he saw no need to rush the shift towards post-pandemic policy.
Representative Ann Wagner, a Republican from Missouri, challenged that conclusion, relaying what’s likely to be a refrain from lawmakers as long as inflation continues to rise: their constituents are getting worried.
At a prior hearing in February “you reiterated that price spikes were temporary. I can tell you that the families and businesses I represent are not feeling that these price spikes are temporary,” Wagner said.
“The incoming data have been higher than expected and hoped for but are still consistent” with a temporary bout of higher prices, Powell responded.
“It is housing, appliances, food prices, gas,” Wagner retorted, a sign of what could become growing political pressure on the Fed to get tougher on inflation if the spikes in prices continue.
Representative Anthony Gonzalez, a Republican from Ohio, took aim at a new Fed framework that aims to encourage higher employment by letting inflation run “moderately” above the central bank’s 2% target “for some time”
“How long is ‘some time’?” Gonzalez asked, arguing that the Fed’s current policies may be doing little to encourage employment at a time when employers are already posting record numbers of jobs.
“It depends,” Powell said, demonstrating the dilemma he faces if prices continue rising. “Right now inflation is well above 2%. … The question for the (Federal Open Market) Committee will be where does this leave us in six months.”
U.S. Treasury yields fell after the release of Powell’s prepared testimony earlier on Wednesday and remained lower even though prices of factory inputs rose at a higher-than-expected pace in June, an indication markets construed his comments as a sign the monetary taps will stay open.
Powell’s remarks were notable as well for excluding any mention of risks to the recovery from the coronavirus Delta variant, with the Fed chief saying the central bank expects strong upcoming job gains “as public health conditions continue to improve.”