Powell says rising inflation lasts longer than expected

WASHINGTON (AP) – Federal Reserve Chairman Jerome Powell is preparing to tell Congress that the current spike in US inflation has turned out to be bigger and longer than expected.

But, in remarks prepared for delivery on Tuesday, he says that if inflation does not ease, the Fed is ready to use its tools to reduce the pressure on prices.

Powell is scheduled to appear Tuesday with Treasury Secretary Janet Yellen in a watchdog hearing on massive government support programs adopted to deal with the COVID pandemic. The Fed made Powell’s remarks public on Monday evening.

“As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in certain sectors,” Powell said in his remarks. prepared remarks. “These effects have been larger and longer lasting than expected, but they will subside, and as they do, inflation is expected to fall back towards our longer-term target of 2%.

Powell is expected to face tough questions about inflation, especially from Republican lawmakers, who warn the country could experience the kind of runaway inflation not seen since the 1970s.

In recent months, consumer prices have posted 12-month gains of 5.4%, an unprecedented rate since 2008.

Powell said the unprecedented process of reopening the economy after COVID shutdowns has resulted in a number of issues that could continue in the months to come.

“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,” Powell said.

But he said: “If higher and sustained inflation becomes a serious concern, we would certainly react and use our tools to ensure that inflation reaches levels consistent with our targets.”

The Fed uses its powers over interest rates, cutting rates when the economy weakens and raising them when growth is too strong and triggering unwanted inflation.

At its meeting last week, the Fed left its key rate at an all-time low of zero at 0.25%. But the central bank has indicated that it is getting closer to starting to withdraw some of the support it had provided in the form of purchases of $ 120 billion per month of bonds to keep downward pressure on rates. long-term.

Many economists expect the Fed to announce at its next meeting in November a plan to cut or cut these purchases with the aim of eliminating them completely by the middle of next year.