U.S. Federal Reserve Chairman Jerome Powell sought to calm concerns about inflation and the likelihood that the central bank will raise interest rates in the near-term.
Speaking before the House Financial Services Committee, Powell emphasized that the American economy has a long way to go in its recovery and signs of prices rising won’t lead to persistently high inflation.
"Our policy is accommodative because unemployment is high and the labor market is far from maximum employment," the Fed Chair said. "It’s true that some asset prices are elevated by some measures."
Powell pointed to the example of car prices rising because of a microchip shortage and supply-chain constraints in the tech industry.
"That doesn’t necessarily lead to inflation because inflation is a process that repeats itself year over year over year," he said, rather than a one-time surge.
In multiple questions from lawmakers about the risk of the economy overheating -- with additional government aid and continued support from the central bank – Powell said his view is that there’s a long way still to go before returning to pre-pandemic strength.
When pushed by lawmakers, Powell did acknowledge that the central bank does expect inflation to move up because of "base effects" and a surge in demand as the economy reopens from shutdowns during the virus outbreak. But he emphasized that the central bank has "the tools to deal with it."
Powell delivered his remarks as signs appear that the economy is strengthening and as optimism grows with the distribution of vaccines. Markets are also expecting further fiscal stimulus from President Joe Biden and Congress, possibly as early as this week.
During the hearing, Powell voiced confidence that the Fed would succeed in lifting inflation and getting it to average 2% over time.
"We live in a time where there is significant disinflationary pressures around the world and where essentially all major advanced economy’s central banks have struggled to get to two per cent. We believe we can do it, we believe we will do it," Powell said.
