Jay Powell to say US price pressures persist longer than expected

High price pressures resulting from pandemic disruptions persist longer than expected, Federal Reserve Chairman Jay Powell told U.S. lawmakers on Tuesday in a joint congressional hearing with Treasury Secretary Janet Yellen .

In testimony due to be delivered to the Senate Banking Committee at 10 a.m. EST, Powell acknowledged that the economy was strengthening, but warned of the risk that inflation could stay higher for longer than expected, as the more contagious variant of the Delta coronavirus further erases supply chains.

“As the reopening continues, bottlenecks, hiring difficulties and other constraints could again prove to be larger and longer lasting than expected, posing upside risks to inflation,” he said in prepared remarks released on Monday.

“If higher and sustained inflation became a serious concern, we would certainly react and use our tools to ensure that inflation is reaching levels consistent with our target.”

He added that inflation would remain “high” for the next several months before moderating and falling back to the central bank’s long-standing 2% target.

His comments follow the latest monetary policy meeting last week, in which the Fed announced it would soon start cutting, or “cutting,” the $ 120 billion asset purchase program. dollars per month that it put in place last year and pledged to continue until it sees “further substantial progress” towards average 2% inflation and peak employment .

New projections released last week suggest more Fed officials now believe an interest rate hike may be appropriate next year, with at least three hikes expected by the end of 2023.

Yellen, who is also due to testify on Tuesday, added in her own remarks to lawmakers that she was “optimistic” about the “medium-term trajectory” of the economy and expected a return to full employment in 2022.

Nonetheless, she warned of the lingering risks posed by the Delta variant, which has weakened consumer confidence and held back business activity.

“We are in the midst of a fragile but rapid recovery from the pandemic-induced recession,” she said. “As our economy continues to grow and recover a substantial portion of the jobs lost in 2020, the significant challenges of the Delta variant continue to dampen the speed of the recovery and present significant obstacles to a vibrant economy.”

She also implored congressional lawmakers to raise the debt ceiling in order to avoid what she said would be a “catastrophic event for [the] economy ”, warning not only against a financial crisis and economic recession, but also against the solvency of the United States.

The warning comes after a bill to raise the United States’ borrowing limit failed to exceed the 60 Senate obstruction vote threshold on Monday evening, with Republicans in the upper house of Congress voting to reject the measurement. Democrats, who control the Senate with the smallest of margins, are now under pressure to raise the borrowing limit themselves and avoid a government shutdown before Friday’s 12:01 am deadline.

Senior Fed officials have warned lawmakers of potentially serious consequences if no deal is reached. On Monday, John Williams, the chairman of the New York Federal Reserve, said investors could get “extremely nervous” and think “I have to back out of things,” which he said could lead to “sort of ‘extreme reaction in the markets’.

Federal Reserve Governor Lael Brainard also urged lawmakers to act on Monday, saying Congress “must step up,” while Powell last week described the possibility of “serious damage” if the United States fails to their obligations.