Despite high inflation, the US Federal Reserve Chairman says the stimulus program would continue.


Despite high inflation, the US Federal Reserve Chairman says the stimulus program would continue.

Despite the fact that US inflation has reached its highest level in over a decade, Federal Reserve Chair Jerome Powell indicated Wednesday that the central bank is sticking to its guns and would continue to offer stimulus until the economy has completely recovered.

Powell recognized that the inflation rise was stronger than the Fed expected and that it will remain “elevated” in the coming months, but he remained optimistic that the rate would fall once supply bottlenecks and other temporary difficulties are handled.

Powell stated in his semi-annual address to Congress that the world’s largest economy still has a “far way to go” to recover to full employment following the Covid-19 outbreak.

“Until the recovery is complete,” he stated, the Fed will “ensure that monetary policy continues to give substantial support to the economy.”

At the outset of the pandemic, the US central bank reduced the benchmark lending rate to zero and launched a large bond-buying operation to provide liquidity to the economy.

However, as the economy has reopened and Covid-19 vaccinations have become more widely available, inflation has risen, with the annual consumer price index (CPI) reaching 5.4 percent in June, the highest level since August 2008.

According to data released Wednesday, wholesale prices are also rising, with the producer price index rising to 7.3 percent in the 12 months ended in June, the highest since the Labor Department began tracking in November 2010.

However, Powell and other Fed officials have maintained that the elevated rates are primarily due to temporary challenges connected to the attempts to reopen the economy following the recent shutdowns, and that they are not a justification to reduce stimulus efforts.

Many private economists agree that inflation peaked in June, but Powell was grilled by members of the House Financial Services Committee regarding prices.

While the increase in inflation was more than officials had anticipated or hoped for, Powell said it was “consistent” with the Fed’s stated dynamic.

He told lawmakers that “the very high inflation rates are coming from a tiny group of goods and services that are directly related to the reopening of the economy,” citing demand for automobiles and plane trips as examples.

According to him, the surge was caused by a “perfect storm” of high demand and low supply, citing reasons such as a global semiconductor shortage that has hampered auto production. However, those factors “should partially reverse as the impacts of the bottlenecks unwind,” he said.

Policymakers, according to Powell, will not. Brief News from Washington Newsday.


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