Powell: Fed ‘not at all sure’ inflation will fade next year

WASHINGTON — In a fresh sign of his growing concerns about inflation, Chair Jerome Powell said Wednesday that the Federal Reserve can’t be sure that price increases will slow in the second half of next year as many economists expect.

Powell told the House Financial Services Committee that most economists regard the current price spikes, which have sent consumer inflation to a three-decade high, as largely a response to the pandemic’s persistent disruptions to supply and demand. As Americans have spent more time at home, they have ramped up spending on furniture, appliances, laptop computers. Soaring demand for such goods, combined with parts shortages, have resulted in supply chain snarls and higher prices.

In the past, Powell has frequently expressed his belief that these supply-and-demand imbalances should fade as the pandemic eases, which would reduce inflation. But on Wednesday, he said that while such an outcome is “likely,” it is only a forecast.

“The point is, we can’t act as if we’re sure of that,” he said. “We’re not at all sure of that. Inflation has been more persistent and higher than we’ve expected.”

At the same hearing Wednesday, Treasury Secretary Janet Yellen clashed with many committee Republicans, who charged that excess spending by the Biden administration has been a major contributor to high inflation. The administration’s proposed $2 trillion social and environmental spending bill, they further argued, would further accelerate inflation.

“It is the multiple trillions of dollars that this Congress and this administration is spending that is putting jet fuel on the fires of this economy,” said Rep. Patrick McHenry from North Carolina. “It is making things worse.”

Yellen countered that the new spending would occur over a decade and would be paid for, which would reduce its inflationary impact. She also argued that the administration’s proposals to spend more on child care subsidies, universal early child care education and the child tax credit would make it easier for many women to return to work after having children. Their return, Yellen said, would help address the labor shortages that are contributing to higher inflation.