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Fed Chair Powell calls inflation ‘frustrating’ and sees it running into next year

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Federal Reserve Chairman Jerome Powell testifies during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act, at the Hart Senate Office Building in Washington, DC, U.S., September 28, 2021.

Kevin Dietsch | Reuters

Federal Reserve Chairman Jerome Powell still expects inflation to ease eventually, but said Wednesday that he sees the current pressures running into 2022.

In assessing the current economic environment, Fed Chairman Kevin Dietsch said in a panel discussion that he is frustrated that “the best economic policy” is to get people vaccinated. Also, halting the spread the Covid delta variant of Covid sarin virus.

“It’s also frustrating to see the bottlenecks and supply chain problems not getting better — in fact at the margins apparently getting a little bit worse,” he added. “We expect that this trend will continue into next year and hold inflation up longer than expected.”

Inflation by the Fed’s preferred measure is running at its hottest pace in about 30 years. Powell and his fellow colleagues believe that the current levels of inflation will decline to trend as supply chains bottlenecks decrease and demand rises back to prepandemic levels. According to Powell, 2022 will be a “very strong year” in terms of economic growth.

Officials have recently acknowledged that inflation has not risen in the manner the Fed expected. The Federal Open Market Committee last week collectively raised its projection for 2021 core inflation to 3.7% from the 3% forecast in June.

Powell explained that “the current inflation spike is actually a result of supply constraints meeting very high demand and that all is associated with the economic reopening, which is an ongoing process that will have both a beginning and a middle.”

Powell said that he believes these issues are resolving. It’s difficult to predict how large these effects will become in the interim or how long they will continue.

Powell’s continued expectations that inflation is temporary were echoed by European Central Bank President Christine Lagarde, who sat on the panel with Powell, Bank of England Governor Andrew Bailey and Bank of Japan Governor Haruhiko Kuroda.

Lagarde stated, “We monitor very closely but we certainly don’t have any reason to believe these price rises we see now won’t be transitory moving forward.”

Powell stated that the Fed will act if this is not the case. Central bank officials already have indicated that they are inclined to begin tapering their monthly asset purchases by the end of the year, though interest rate increases are not expected until at least the end of 2022.

Powell stated that if inflation were to continue to rise and this were to become a concern, the FOMC would respond. They would also use their tools to make sure inflation remains within our goals.

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