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Powell said supply-side constraints have worsened and inflation risk has increased.

Federal Reserve Chairman Jerome Powell said he was concerned about rising inflation, and that the central bank would closely monitor signs that households and businesses expect sustained price pressure to continue. rice field.

“Supply-side constraints are getting worse,” Powell said at a virtual meeting on Friday. “The risks are clearly longer, longer and more persistent bottlenecks, and thus higher inflation.”

The Federal Reserve Board expected price pressures to ease as the pandemic subsided, but Powell said it was important for the central bank to remain flexible for the next few months. The central bank “needs to make sure that our policies are arranged to accommodate a variety of possible outcomes.”

The rise in vaccination coverage and federal spending of about $ 2.8 trillion approved since December 2020 has brought about an unforgettable recovery in recent years. Inflation surged this year, with the Fed’s recommended gauge of “core prices,” excluding the unstable food and energy categories, rising 3.6% year-on-year in August. This benefit primarily reflects supply chain disruptions and labor and material shortages.

Inflation in the United States has reached its highest level in 13 years, causing debate over whether it is entering a period of inflation similar to that of the 1970s. WSJ’s Jon Hilsenrath is looking at what consumers can expect next.

Powell and his colleagues strongly suggest that the Fed officially announces at its November 2-3 meeting that it will phase out or taper $ 120 billion in monthly Treasury and mortgage purchases. doing. Authorities are likely to cut these purchases by $ 15 billion a month and will be able to complete the bond purchase program by June next year.

“I think it’s time to taper,” Powell said on Friday. “I don’t think it’s time to raise interest rates.”

The schedule for phasing out the Fed’s stimulus package is earlier than investors expected just a few months ago. Authorities don’t want to be in a position to feel compelled to raise interest rates while pushing for monetary stimulus by buying assets. The faster schedule also partially reflects that this year’s inflation surge has been going on longer than central bank officials. Private economics scholars expected.

In his speech in late August, Powell elaborated on five factors that support his view that the recent rise in inflation is “likely to be temporary.” This included the lack of widespread inflationary pressures and the expected slowdown in price increases from items that experienced high inflation this year, such as used cars and other consumer durables.

But at the same time, he concluded his assessment by saying, “I’m looking for evidence to support or fall short of that expectation.”

Inflation data and soaring energy prices since September indicate increased price pressure, and other central banks have indicated plans to raise interest rates more aggressively. This has spurred recent bond market expectations that the Fed will raise interest rates a little faster and faster.

According to futures market prices tracked by CME Group, there is more than a 75% chance of interest rate hikes at least twice by the end of next year...

At the end of last month’s Fed meeting, investors saw a probability of about 20% of two increases by the end of 2022.

Powell said managing the economic withdrawal from the pandemic well is the biggest challenge facing Fed policy makers. The virus essentially eliminated some of the potential economic consequences of concentrating on contact service sectors such as the leisure, hospitality and entertainment industries. Officials said they “want to give it full-time to come back” before intentionally cooling demand for goods and services by raising interest rates.

Inflation, on the other hand, is well above the Fed’s 2% target. “Okay, Powell knows how painful it is for consumers,” he said.

“We are patient and believe that we can heal the labor market,” he said. But at the same time, if more persistent inflationary pressures appear to be rooting, “you shouldn’t doubt using tools to bring inflation back to 2%,” Powell added.

The Port of Los Angeles, California is struggling to keep up with the crushing of freight containers arriving at the terminal, creating one of the biggest chokepoints of the global supply chain crisis. This exclusive aerial video shows the scope of the problem and the complexity of this process.Photo: Thomas C. Miller

Write in Nick Timiraos (nick.timiraos@wsj.com)

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Powell said supply-side constraints have worsened and inflation risk has increased.

Source link Powell said supply-side constraints have worsened and inflation risk has increased.

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