By CHRISTOPHER RUGABER – AP Economics Writer
WASHINGTON (AP) – High inflation is wreaking havoc on American families, Federal Reserve Chairman Jerome Powell admitted in remarks to be delivered at a Congressional hearing on Tuesday, where he is sure to faced with difficult questions on the subject.
“We know that high inflation comes at a cost, especially for those less able to afford the higher costs of basic necessities like food, shelter and transportation,” Powell said in testimony. prepared which was released to the public on Monday.
The Senate Banking Committee will hold a hearing on Tuesday on Powell’s appointment for a second four-year term. President Joe Biden announced Powell’s renewal at the end of November.
Inflation has soared in the the highest levels in four decades, and on Wednesday, the government is expected to report that consumer prices have jumped 7.1% in the past 12 months, up from a 6.8% annual increase in November.
People also read …
Powell’s appointment is expected to pass the Senate with bipartisan backing, but members of Congress are sure to question Powell on whether the Fed can succeed in taking action to curb inflation without slowing the economy to the point. to fall into recession.
Economists and former Fed officials are increasingly expressing concern that the Fed is lagging behind inflation. Last Friday’s Jobs Report, which showed a sharp drop in the unemployment rate to a healthy 3.9%, and an unexpected rise in wages, fueled those concerns.
While lower unemployment and higher wages benefit workers, these trends can potentially fuel higher prices.
At his last meeting in December, Powell said the central bank rapidly accelerating its efforts to tighten credit with the aim of controlling inflation. The Fed will stop buying billions of dollars in bonds in March, ahead of its previously announced target of doing so in June. These bond purchases are meant to encourage more borrowing and spending by lowering long-term rates.
Fed officials now plan to hike short-term interest rates three times this year, a drastic change from September, when they were divided over doing it just once. Economists increasingly expect them to hike rates at least four times in 2022.
Powell also said in his prepared remarks that the US labor market is “strong” and the economy “is growing at its fastest pace in many years.”
But he also suggested that the economy had suffered longer-term damage from the pandemic.
“We can begin to see that the post-pandemic economy is likely to be different in some ways,” Powell said. “The pursuit of our objectives will have to take these differences into account. “
Powell previously said the Fed’s original goal was to bring the economy and labor market back to pre-pandemic levels, when the unemployment rate fell to its 50-year low of 3.5. % and that the proportion of Americans working or looking for work was higher than it is now.
But more recently, Powell admitted that many people who quit working or looking for work during the pandemic are unlikely to return anytime soon. Millions of older Americans have retired sooner than they likely would have without COVID, and many people are giving up their jobs to avoid becoming infected.
This left companies looking for fewer workers to fill more than 10 million open jobs, a near-record, and forced them to rapidly increase hourly wages. Rising wages could fuel more spending, which could push up prices.
Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.