High inflation is taking a toll on American households
WASHINGTON — High inflation is taking a toll on American households, Federal Reserve Chairman Jerome Powell acknowledged Tuesday in remarks scheduled for a congressional hearing, where he is sure to face tough questions on the subject.
“We know that high inflation is a toll precise, especially for those who are not able to meet the high costs of essentials such as food, housing and transportation,” Powell said in prepared testimony.
The Senate Banking Committee will hear Powell’s nomination for a second four-year term on Tuesday. President Joe Biden announced Powell’s reappointment in late November.
Inflation has hit the highest level in four decades, and on Wednesday the government is expected to report that consumer prices have risen 7.1% over the past 12 months from November’s 6.8% annual increase.
Powell’s nomination is likely to be approved by the Senate with bipartisan support, but members of Congress are sure to question Powell whether the Fed can successfully take steps to rein in inflation without slowing the economy so much that He falls into recession.
Economists and former Fed officials are increasingly concerned that the Fed is behind the curve on inflation. Last Friday’s jobs report, which showed a sharp drop in the unemployment rate to a healthy 3.9% and unexpected wage growth, fueled those concerns.
While lower unemployment and higher wages benefit workers, those trends could potentially fuel rising prices.
At its last meeting in December, Powell said the central bank was ramping up its efforts to consolidate debt with the goal of reining in inflation. The Fed will stop buying billions of dollars worth of bonds in March, ahead of its previously announced target of doing so in June. The purpose of those bond purchases is to encourage more borrowing and spending by lowering long-term rates.
Fed officials now expect to hike short-term interest rates three times this year, a sharp change from September, when they were divided on doing so even once. Economists are increasingly expecting that they will raise rates at least four times in 2022.
Powell also said in his prepared remarks that the US job market is “strong” and the economy is “expanding at its fastest pace in many years.”
But he also suggested that the economy has suffered some long-term damage from the pandemic.
“We may be starting to see that the post-pandemic economy is likely to be different in some respects,” Powell said. “These differences need to be taken into account in the pursuit of our goals.”
Powell previously said that the Fed’s initial goal was to get the economy and job market back to pre-pandemic levels, when the unemployment rate fell to a 50-year low of 3.5% and the proportion of Americans working either Was or was looking for work. more than now.
But recently, Powell has acknowledged that many people working or looking for jobs in the pandemic are unlikely to return anytime soon. Millions of older Americans retired earlier than they were likely to be without COVID, and many are leaving jobs to avoid becoming infected.
This has left businesses chasing fewer workers to fill more than 10 million open jobs, and forced them to rapidly raise hourly wages. Rising salaries can lead to higher expenses, possibly driving up prices.