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Federal Reserve Chairman Jerome Powell said Friday that elevated U.S. inflation readings are likely to last into next year and the central bank is alert to the risk that consumers start to expect higher inflation.
In a discussion sponsored by the central bank of South Africa, Powell said he agreed roughly with the view that inflation will be transitory but also persistent. The base case is that price pressures will recede.
Still, supply constraints are pushing inflation higher and it is difficult to predict when these bottlenecks will ease, Powell said.
If the Fed sees a serious risk of inflation expectations moving persistently higher, the Fed would use its tools to bring inflation down, Powell said. When the public expects higher inflation, economists think this adds to the risk that prices will keep moving higher.
“We need to make sure that our policy is positioned to adjust to a range of possible outcomes,” Powell said.
Powell said U.S. economic growth slowed sharply in the July-September quarter as the coronavirus delta variant caused consumers to pull back from eating out and shopping. The government will release its first estimate of third-quarter GDP growth next week.
Fed policymakers will meet on Nov. 2-3 to set monetary policy. On the table is a decision on whether to start to slow down, or taper, the $120 billion in monthly asset purchases. Some Fed officials want the taper to start in mid-November. Others wanted to delay until December.
Powell said Friday it was “time to taper.”
U.S. stocks
DJIA,
SPX,
turned lower as Powell was speaking.
