Powell: "Inflation Rise Will Ease Only by Year-End... Tapering Still Far Off" (Update)

"Inflation Rise Will Continue for a While but Will Disappear"
Focus on Blocking Interest Rate Hikes and Tapering Expectations

[Image source=EPA Yonhap News]

[Asia Economy New York=Special Correspondent Baek Jong-min] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), drew a line by stating that inflation will remain at a high level for a considerable period, but it is still far from meeting the conditions for interest rate hikes and asset purchase tapering.

On the 13th (local time), Powell appeared before the House Financial Services Committee and forecasted, "Inflation has been higher than we expected and will persist a little longer than we anticipated." He expected inflation to ease by the end of this year.

Powell said that bottlenecks caused by COVID-19 and increased demand due to the resumption of economic activities have led to price increases in certain goods and services, but he anticipated that much of this would be resolved once the bottlenecks are cleared.

Although this position is somewhat of a retreat from the earlier claim that inflation is temporary, the conclusion remains unchanged.

He stated that there would be no interest rate hikes due to temporary inflation increases. He argued, "We should not react to things that will disappear."

Powell emphasized that despite the June Consumer Price Index (CPI) released a day earlier rising 5.4% compared to a year ago, fueling ongoing inflation concerns, the Fed would not rush to raise interest rates prematurely.

The Producer Price Index (PPI) for June, also released that day, increased by 7.3% compared to a year ago, but Powell continued to emphasize the base effects caused by COVID-19 and stressed maintaining the current monetary policy to support economic recovery.

The Fed also acknowledged that recent economic conditions are changing. The Beige Book released by the Fed that day stated that due to U.S. economic growth, jobs have increased significantly, especially in low-skilled positions, and prices are rising at an above-average pace.

The Beige Book particularly noted, "While some thought inflationary pressures were temporary, most businesses expected to raise prices due to raw material shortages and labor shortages."

In response, Powell mentioned that the Fed is capable of managing inflation. He warned, "If we find that the risk of prolonged inflation is real, we are prepared to appropriately change monetary policy."

Regarding the monthly $12 billion asset purchase tapering, Powell said that employment and inflation targets have still not been met, and "Fed members expect progress to continue."

He seemed aware of disagreements among some Fed members regarding asset purchase tapering and mentioned that discussions would continue at this month's FOMC meeting but did not specify when a conclusion would be reached, adding that there would be sufficient prior notice before tapering.

On the same day, Republican lawmakers argued that inflation was at a severe level and that the Fed should respond, presenting views different from Chairman Powell. Powell is a Republican appointee from the Donald Trump administration.

The market was relieved by Powell's remarks. After the June CPI announcement a day earlier caused a sharp rise to 1.4%, the U.S. 10-year Treasury yield fell by 0.05 percentage points to 1.36%. The 30-year Treasury yield also re-entered the 1.9% range from the 2% range the day before. The 2-year yield, sensitive to short-term rate changes, dropped by 0.03 percentage points to 0.23%.

Major indices on the New York Stock Exchange showed mixed results. The Dow Jones Industrial Average rose 0.13% to close at 34,922.34, the S&P 500 increased 0.12% to 4,374.30, while the Nasdaq fell 0.22% to 14,644.95.

This content was produced with the assistance of AI translation services.