Powell Downplays Risk of Runaway Inflation Post-Pandemic
Investing.com
Published Jan 14, 2021 01:10PM ET
By Yasin Ebrahim
Investing.com – Federal Reserve Chairman Jerome Powell said Thursday, the central bank would allow the labor market to run hot and inflation to move above its 2% target over time, reaffirming market expectations that the central bank is in no rush to raise rates.
Powell acknowledged the potential of pent-up consumer demand boosting inflation as the pandemic recedes, but downplayed the risk of runaway inflation, indicating the post-pandemic inflation pick up will likely be a one-off.
“The real question is, how large is that effect [post-pandemic rise in prices] is going to be and will it be persistent … clearly a one time increase in prices is very unlikely to meet persistently high inflation,” Powell said Thursday during a virtual event sponsored by Princeton's Bendheim Center for Finance.
Inflation would “need to average 2% over time” to be anchored to the central bank’s target, he added.
The Fed Chair said the labor market would be allowed to run hot, without prompting the need to rein in easing monetary policy measures, highlighting once again that inflation will continue to lead the central bank's policy decisions.
“If the rate of unemployment were to be well below our current estimates of the natural rate of unemployment that wouldn't be a reason to raise interest rates, unless we see troubling inflation or other imbalances that could threaten the achievement our mandate,” Powell said.
Powell's remarks come just a day after Fed Vice Chairman Richard Clarida said the central bank won't raise rates until inflation reaches 2%.
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Written By: Investing.com
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