Fed’s Powell says high inflation temporary, will ‘abate’

Federal Reserve Chair Jerome Powell said Tuesday that he expects recent price spikes will soon subside and reduce inflation to a sustainable level. Consumer prices jumped 5% in May compared with a year earlier, the largest increase in 13 years. But Powell said the increase mostly reflected temporary supply bottlenecks, and the fact that prices fell sharply last spring at the onset of the pandemic, which make inflation figures now, compared with a year ago, look much larger.

Powell’s comments come at a time that financial markets are struggling to interpret the Federal Reserve’s recent moves. Last week Fed officials signaled that they may increase the central bank’s benchmark interest rate twice in 2023, an earlier time frame than they set out in March, when no rate hike was expected until after that year.

Powell also said the Fed had formally begun discussing when and how the central bank might reduce the current $120 billion a month of Treasurys and mortgage-backed bonds that the Fed is purchasing each month. Those purchases are intended to keep longer-term interest rates lower to encourage more borrowing and spending. Both moves were seen as evidence that the Fed wanted to indicate it was prepared to keep inflation in check without initially taking any steps to pull back on its efforts to stimulate the economy.

Some Fed officials are not completely convinced that inflation is temporary. St. Louis Fed President James Bullard said Monday that the economy is in unprecedented territory, making it hard to know where inflation will go next, but added that, “we have to be ready for the idea that there are upside risks to inflation, (it) could go higher” than the 2.5% rate he has forecast for next year.

Fed’s Powell says high inflation temporary, will ‘abate’, Bloomberg, Jun 23