Thu. Jan 20th, 2022

The Fed chief told U.S. lawmakers on Wednesday that although most economists see inflation declining by the middle of next year, “we can not act as if we are sure of it.”

Federal Reserve Chairman Jerome Powell’s intruder opened his wings again on Wednesday, a day after he told U.S. lawmakers that it was probably time to withdraw the word “perishable” when describing inflation.

In a second day of testimony before Congress Wednesday, Powell said that although most economists see price pressure easing by the middle of next year, “we can not act as if we are sure of it.” He also noted that “IInflation was more persistent and higher than we expected. ”

US stock markets sold Tuesday and the dollar strengthened against other currencies after Powell signaled that the Fed could accelerate its settlement of bond purchases that helped keep a lid on long-term interest rates during the coronavirus pandemic. If the Fed does accelerate its decline in bond purchases, an interest rate hike could occur sooner than expected.

The Fed prioritized getting Americans back to work during the recovery process to keep price pressures in check because it saw this year’s inflation peak as a temporary consequence of supply chain snooping and shortages due to businesses around the world massively reopened it.

But Powell indicated Tuesday that a shift in the Fed’s thinking is underway.

Although the U.S. labor market still has not regained all the jobs it lost during last year’s restrictions, it is so strong that Americans are resigning their jobs in record numbers. And weekly unemployment benefit applications have reached a 52-year low.

U.S. firms are also struggling to fill an almost record number of jobs, with many offering increases and better benefits to attract scarce workers.

As businesses pay more for workers and raw materials, these costs are passed on to American consumers. In October, consumer price inflation rose at the fastest pace in 30 years.

Powell reiterated on Wednesday that the Fed has not yet seen any evidence of a so-called “wage price spiral” developing. This is a cycle in which fatter wage checks lead businesses to keep prices rising, leading to workers asking for another increase.

“We’ve seen wages rise significantly,” Powell said. “We do not see them moving upwards at a worrying rate that tends to cause higher inflation, but it is something we are watching very carefully.”

Despite having to contend with rising prices, consumer spending was strong in October. But inflation is take a toll on consumers’ attitudes about the economy’s prospects as well as their own income.

Consumer confidence fell in November after rising slightly the previous month, the Conference Council said on Tuesday.

And now Omicron is injecting even more uncertainty into the economic outlook.

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