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Video: Fed Chair Expects Months of Elevated Inflation

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Fed Chair Expects Months of Elevated Inflation

Jerome H. Powell told House lawmakers that inflation had increased “notably” in the country’s reopening from the pandemic and would most likely stay higher in the next months before moderating.

Over the first half of 2021, ongoing vaccinations have led to a reopening of the economy and strong economic growth, supported by accommodative monetary and fiscal policy. Real gross domestic product this year appears to be on track to post its fastest increase in decades. Household spending is rising at an especially rapid pace, boosted by strong fiscal support, accommodative financial conditions and the reopening of the economy. Inflation has increased notably and will likely remain elevated in coming months before moderate. Inflation is being temporarily boosted by base effects as the sharp pandemic-related price increases from last spring drop out of the 12-month calculation. In addition, strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind. Prices for services that were hard hit by the pandemic have also jumped in recent months as demand for these services has surged with the reopening of the economy. To avoid sustained periods of unusually low or high inflation, the F.O.M.C.‘s monetary-policy framework seeks longer term inflation expectations that are well anchored at 2 percent, the committee’s longer run inflation objective. Measures of longer term inflation expectations have moved up from their pandemic lows and are in a range that is broadly consistent with the F.O.M.C.‘s longer run inflation goal. At our June meeting, the F.O.M.C. kept the federal funds rate near zero and maintained the pace of our asset purchases. These measures, along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete.

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