Fed's Powell says decades-long trend of weak inflation likely won't change from new stimulus - at least not immediately
- Reopening and new stimulus will likely lift
inflationlater in 2021, FedChair Jerome Powellsaid.
- Still, the uptick will likely be small and only temporary, he added in a Tuesday Senate hearing.
- Powell said he expects the tendency for inflation to come in below the Fed's target to linger.
Additional fiscal stimulus is expected to lift inflation, but the quarter-century trend of weak price growth will likely remain intact,
With Democrats plowing forward with efforts to pass a $1.9 trillion stimulus plan, the focus has shifted from the package's elements to its effect on inflation. Where Democrats argue the measure is necessary to fill the hole in the US economy, Republicans have warned the bill will overfill the hole and kickstart a worrying rise in inflation.Several factors stand to accelerate price growth in the near term, Powell said while testifying to the Senate Banking Committee. Low data points from the start of the pandemic will soon be excluded from inflation measures' annualized readings. That omission will make inflation seem to tick higher, but near-term price growth won't have changed as much.
Inflation has consistently landed below the Fed's 2% target for much of the past three decades. While runaway inflation can spark a new economic crisis, too-little inflation indicates an
Inflation will likely be volatile as the economy rebounds and consumer spending bounces back, the chair said. Reopening-fueled price growth is ultimately "a good problem to have," but it won't derail the dynamics that drove decades of weak inflation, he added."Inflation dynamics do change over time, but they don't change on a dime," Powell said. "We don't see how a burst of fiscal support or spending, that doesn't last for many years, would actually change those inflation dynamics." The
"If it does turn out that unwanted inflation pressures arise and are persistent, then we have the tools to deal with that," he added.
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