Federal Reserve Chair Jerome Powell will warn members of the Senate Banking Committee about upside risks to inflation during testimony on Tuesday.
In prepared remarks, Powell predicted inflation will remain elevated in the coming months before moderating.
“As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors,” Powell said.
He added, “These effects have been larger and longer lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal.”
Powell warned supply bottlenecks, hiring difficulties, and other constraints could prove to be greater and more enduring as the economic reopening continues, posing upside risks to inflation.
“If sustained higher inflation were to become a serious concern, we would certainly respond and use our tools to ensure that inflation runs at levels that are consistent with our goal,” the Fed chief said.
Powell also noted that the economy has continued to strengthen since he last appeared before the committee but acknowledged the recent rise in Covid-19 cases has slowed the recovery in the sectors most adversely affected by the pandemic.
While noting labor market conditions have also continued to improve, Powell said, “Factors related to the pandemic, such as caregiving needs and ongoing fears of the virus, appear to be weighing on employment growth” but predicted these factors would diminish amid continued progress on containing the virus.
Powell stressed that the Fed would continue to “do all we can to support the economy for as long as it takes to complete the recovery.”
The comments from Powell come after recent indications the Fed plans to begin scaling back its asset purchases in the near future.
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