Federal Reserve Chairman Jerome Powell said on Thursday that current high levels of inflation are likely to ease next year and will not stop the Fed from moving toward its target of full employment.
Powell spoke earlier this week about the “tension” between the Fed’s two goals of maximizing employment and keeping prices stable. In periods of high unemployment, inflation is usually low, and vice versa. But for now inflation has jumped above the Fed’s 2% target, while the unemployment rate remains high at 5.2%.
This could complicate the Fed’s mission, as keeping its benchmark short-term interest rate low – it is currently pegged at near zero – could help boost hiring, but it could also worsen inflation.
In remarks before the House Financial Services Committee, however, Powell said he believes the Fed’s hike will lead to a drop in inflation without higher rates.
Powell said “current inflation” is a function of supply-side constraints, over which we have no control. “But I would say that we expect to see some relief in the first half of next year, depending on the bottleneck, and inflation should come down.”
The Fed chair also said that “we are far from full employment, which gives us incentives” to keep interest rates low. Lower rates can encourage more lending and spending by consumers and businesses and ultimately lift recruitment. Last week, Fed officials predicted their first interest hike would not happen until late next year.
Powell has also said that if there are signs that inflation may rise to volatile levels, the Fed will raise rates to bring it under control.
“We just have to balance the two. But I would say our expectation is that inflation will come down and we’re not going to face that difficult trade-off of the two targets in the end in tension,” Powell said on Thursday.
Powell’s remarks came in response to questions from Republican members of the committee who said Americans are concerned about rising inflation. Prices rose 4.2% in July from a year earlier, the biggest increase in three decades, according to the Fed’s preferred gauge.
Responding to a question from Democrat Joyce Beatty of Ohio, Powell pledged to keep diversity in mind as the Fed replaces two presidents of regional banks who retired on Monday after financial trades made last year.
“I can absolutely guarantee you that we will work hard to find diverse candidates for both of those jobs and give them a fair shot,” Powell said.
This story has been published without modification in text from a wire agency feed.
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