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Federal Reserve Chairman Jerome Powell played down the recent spate of high inflation readings on Wednesday, telling Congress price pressures are expected to ease further.
On Tuesday, figures from the Bureau of Labor Statistics showed the consumer price index rose 5.4% on an annual basis in June, the fastest pace since August 2008. A read on producers also showed as prices accelerate to the largest annual increase in more than a decade, testing the Fed on its commitment not to let inflation “moderately” exceed its 2% inflation target.
“Right now, of course, inflation is not moderately over 2%, it’s way over 2%. It doesn’t sound like “moderately,” “Powell told the House financial services committee in testimony Wednesday.
But Powell said the question is whether or not inflation will drop in six months, which remains his expectation.
“It will depend on the path of the economy, it will really depend,” he said.
Powell acknowledged that the inflation data was higher than expected and did not rule out the possibility that these price pressures may be more persistent than expected.
But the Fed chief pointed to the prices of used cars and trucks as evidence of the “transient” nature of the higher inflation readings. The BLS noted that prices in this category rose 10.5% just between May and June, which the government agency said was more than a third of the rise in seasonally adjusted inflation figures. .
“It’s just a perfect storm of high demand and low supply. And it should pass. Unless we believe there will be a multi-year used car shortage in the United States, we should look at [high inflation] as temporary, ”Powell said.
Powell’s testimony accompanied the Fed’s “Beige Book,” which details economic conditions across the country. The report noted that some business contacts described the price pressures as temporary, but “the majority expect further increases in input costs and selling prices in the coming months.”
For the Fed, the next big policy question is when to start slowing the pace of its asset purchases. Since the depths of the pandemic, the Fed has bought about $ 120 billion per month in U.S. Treasuries and agency mortgage-backed securities.
The Fed chairman said more details on when the Fed might slow down the pace of so-called “quantitative easing” could come out at the next Fed policy-making meeting. July 27 and 28.
“We don’t want to surprise the markets or the public, and we’ll be giving a lot of notice as we move forward on this,” Powell said.
The Fed chairman will return to Capitol Hill to testify before the Senate Banking Committee on Thursday morning.
Brian Cheung is a reporter covering Fed, Economics and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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