Powell says the Fed faces a ‘tough trade-off’ if inflation is not moderating

WASHINGTON — Federal Reserve Chairman Jerome Powell told lawmakers Thursday that the central bank still expects a reversal of the recent surge in inflation, but said it was difficult to say when that might happen.

Powell said at a House Financial Services Committee hearing, where he appeared alongside Treasury Secretary Janet Yellen, that the price hikes this year “are the result of supply-side bottlenecks that we have no control over.”

“We have an expectation that high inflation will subside, because we believe that the factors causing it are temporary and related to the epidemic and the reopening of the economy,” he said. “These are not things we can control.”

High vaccination rates and about $2.8 trillion in approved federal spending since December 2020 recovery produced unparalleled in recent memory. Inflation is up this year, with “core prices” excluding volatile food and energy categories rising 3.6% in July from a year earlier, using the Fed’s preferred metric. Reflect the gains to a large extent Disrupted supply chains and shortages associated with reopening the economy.

Inflation in the United States reached its highest level in 13 years recently, sparking debate over whether the country is entering an inflationary period similar to the 1970s. WSJ’s John Hilsenrath looks at what consumers can expect next.

With lawmakers questioned on Thursday, Powell acknowledged that the central bank could face tough decisions next year if inflation remains high while Unemployment is also high.

“Most of the time, inflation is low when unemployment is high, so interest rates solve both problems,” he said.

This is not the case now. Inflation is well above the Fed’s 2% target, Powell said, and the economy is “a long way, we think, from full employment.” “This is the very difficult situation we find ourselves in.”

If inflation falls on its own, Powell added, “we won’t eventually have that hard tradeoff” to decide whether to raise interest rates to cool the economy and reduce inflation when there is still a slack in the labor market.

Treasury Secretary Janet Yellen said at a congressional hearing Thursday that she supports eliminating the debt ceiling.


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The Fed chief indicated last week that the central bank was Ready to start reversing pandemic stimulus In November, the Federal Reserve’s rate-setting committee indicated it might raise interest rates next year amid the risks of inflation rising for longer than expected.

Mr. Powell and his colleagues have indicated forcefully in recent days that – as long as the economy does not suffer a major setback – the Federal Reserve will formally announce a phased reduction or reduction of its $120 billion monthly purchases of Treasury and mortgages at its next meeting, November 2-3.

New forecasts released at the end of the Fed’s two-day policy meeting last week showed that half of 18 officials expect to raise interest rates by the end of 2022. In June, only seven officials predicted that timetable, with most starting instead to raise rates. Interest rates in 2023. Forecasts showed that many officials expected somewhat higher inflation next year than they did in June, and nearly all of them expect more rate increases in 2023.

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As Ms. Yellin reiterated Her plea for lawmakers to move quickly to raise the federal borrowing limit, a move that does not approve of the new spending but instead Allows the government to pay the bills I have already agreed to bear it.

She was asked if she would support exclusion debt ceilingMrs. Yellen said yes. She said Congress, when making decisions on taxes and spending, must ensure that the United States has the ability to cover any shortfall with new borrowing.

“I think it is very devastating to put the president and I, the secretary of the treasury, in a position where we may not be able to pay the bills resulting from those earlier decisions,” she said.

Ms Yellen told Congress this week that the Treasury will not be able to continue paying all government bills on time unless lawmakers raise or suspend the federal debt ceiling by October 18. After that, the US may default on its debt, which could lead to a sharp deterioration in financial markets that plunges the US into a recession.

With less than three weeks to go until the government runs out of cash, Congress is stuck in an impasse over raising the debt limit, with Senate Republicans This Week Hindered Democrats’ Efforts To suspend the ceiling until 2022.

On Wednesday, the House of Representatives voted 219-212 to suspend the limit, but Senate leaders declined to say how it would proceed, insisting they had options while putting pressure on Republicans to drop their opposition and submit votes to raise the debt ceiling.

write to Kate Davidson in kate.davidson@wsj.com And Nick Timiraos in nick.timiraos@wsj.com

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