US Fed chief expects modest upward pressure on prices

The Federal Reserve building is pictured in Washington, DC, U.S.

“We do expect that inflation will move up over the course of this year, first because of what we call base effects, the very low readings of last year in March and April,” Powell said at a hearing before the House Financial Services Committee on Tuesday.

“Possibly after that, we’ll see situation in which, as the economy reopens and vaccination continues, there could be a surge in spending and there could be some bottlenecks in the economy,” Powell said. “We might see some upward pressure on prices.”

Patrick McHenry, ranking member of the committee, is among the lawmakers who highlighted inflation concerns during the hearing.

“There is a great deal of speculation that we should be worried about inflationary pressures, particularly after the passage of the 1.9-trillion spending bill,” McHenry said, adding that recent press reports showed that the administration is contemplating additional $3 trillion of spending.

“Does the Fed share the inflationary pressures and concerns with this rate of spending?” the Republican congressman raised the question to Powell.

The Fed chief noted that “our best view is that these effect on inflation will be neither particularly large, nor persistent.”

“Part of that is we have been living in a world of strongest disinflationary pressures around the world really, for a quarter of a century,” he said. “We don’t think that a one-time surge in spending leading to temporary price increases would disrupt that.”

Powell added that the central bank has the tools to deal with inflationary pressures, reaffirming that it remains strongly committed to inflation expectations anchored at 2 per cent.

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