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In his testimony to Congress Wednesday, Federal Reserve Chairman Jerome Powell said historically changes in the level of money supply have not affected levels of inflation.
In response to a question posed by Congressman Warren Davidson on whether “M2 [money supply] increase by 25% in a year “will” decrease the value of the US dollar “, replied Powell,” there was a time when monetary policy aggregates were important determinants of inflation and this was not the case since a long time . ”
Powell added that “the correlation between different aggregates [like] M2 and inflation are just very, very low, and you see it now where inflation is at 1.4% for this year. The dynamics of inflation change over time, but they don’t tend to change overnight. ”
Asked about his take on inflation as a whole, Powell said that “we expect inflation to rise both because of base effects … and also because we might have a surge. from spending to reopening the economy, we don’t expect this to be a persistent force over the longer term, so while you may see prices going up, it’s a different thing from persistent inflation and high, which we don’t expect. If we get it, we have the tools to deal with it. ”
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