The president of the Federal Reserve of the United States (Fed), Jerome Powell, estimated Tuesday that the high inflation could last until the middle of the year and indicated that the institution is ready to take action if it persists.
If the inflationary push continues beyond mid-2022, “we will react accordingly,” Powell said during a Senate hearing, hinting that the Fed would not hesitate to raise interest rates more aggressively.
“The return to normality will take time,” he warned at a time when rates are close to zero.
“To ensure a sustainable expansion (of the economy), we must have price stability,” Powell assured lawmakers during a hearing on his nomination for a second term at the helm of the central bank.
Consumer prices in the United States accelerated in November to reach an unprecedented level in almost 40 years, 6.8% in its 12-month comparison.
That figure is a long way from the Fed’s 2% target, a level considered healthy for the economy. December data will be released today.
Powell attributed most of the inflation to a mismatch between supply and demand caused by disruptions in the supply chain.
He emphasized that restoring price stability is a priority for the Fed.
Powell also argued that ending exceptional monetary support to the US economy would not have a negative impact on the labor market, the other priority parameter for the Fed.
“It’s time we started to move from a pandemic emergency to a more normal level,” Powell said. “This really shouldn’t have a negative effect on the job market,” he added.
“The labor market is recovering incredibly fast” from the crisis in which the Covid-19 pandemic engulfed it in the spring of 2020, he said.
In December, unemployment in the United States fell to 3.9%, returning to near its pre-pandemic level of 3.5%, he noted, although he acknowledged that returning to work for some people remains difficult despite the large number of job openings.