Increased price pressures due to pandemic-related disruptions are taking longer than expected, Federal Reserve Chairman Jay Powell will tell U.S. lawmakers on Tuesday during a joint congressional hearing with Treasury Secretary Janet Yellen.
Powell acknowledged that the economy was getting stronger, but warned of the risk that inflation could rise longer than expected as the more contagious Delta coronavirus variant further increases supply chains.
“As reopening continues, bottlenecks, rental problems and other constraints may once again be bigger and more lasting than expected, posing risks to inflation,” he said in prepared remarks released Monday.
‘If sustained higher inflation were to be a serious source of concern, we would certainly respond and use our instruments to ensure that inflation runs at levels that are in line with our goal.
He added that inflation would continue to “increase” in the coming months before moderating and falling back towards the central bank’s year-long target of 2 per cent.
His comments come on the heels of the latest meeting on monetary policy last week, where the Fed signify it will soon begin to reduce, or diminish, the $ 120 billion-a-month asset purchase program it has launched, promising to continue until it makes ‘significant further progress’ towards inflation averaging 2 percent and maximum employment see.
New forecasts released last week suggest more Fed officials believe an interest rate hike next year may be appropriate, with at least three increases enrolled by 2023.
Yellen, who will also testify on Tuesday, added in her own remarks to lawmakers that she is ‘optimistic’ about the ‘medium-term trajectory’ of the economy and that she will return to full-time work in 2022.
However, she warned against the continued risks of the Delta variant, which dampened consumer sentiment and curbed business activity.
“We are in the midst of a fragile but rapid recovery from the recession caused by the pandemic,” she said. “While our economy continues to expand and recovers a significant portion of the jobs lost during 2020, significant challenges of the Delta variant continue to suppress the pace of recovery and provide a significant barrier to a vibrant economy.”
She also urged lawmakers in Congress to raise the debt limit to what she said was a “catastrophic event for [the] economy ”, warns not only of a financial crisis and economic recession, but also a danger to US creditworthiness.
The warning comes after a bill to raise the U.S. borrowing limit did not exceed the filibuster threshold of 60 votes Monday night, while Republicans in the upper chamber of Congress voted to reject the measure. Democrats, who control the Senate in the slightest margin, are now under pressure to raise the loan limit on their own and prevent a strike by the government before a Friday at 12.01 p.m.
Top Fed Officials warned legislators of possible serious consequences if no agreement is reached. John Williams, the president of the Federal Reserve Bank of New York, said on Monday that investors could get ‘extremely nervous’ and think ‘I have to get out of things’, which he says could lead to an ‘extreme kind’. response to markets ”.
Federal Reserve Governor Lael Brainard on Monday also called on lawmakers to act, saying Congress “must act”, while Powell last week described the possibility of “serious damage” if the US meets its obligations. .