WASHINGTON – High inflation is imposing a burden on American families, Federal Reserve Chair Jerome Powell acknowledged in remarks at a congressional hearing Tuesday at which he is expected to be pressed on what the Fed is doing about surging prices for consumers and businesses.
“We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing, and transportation,” Powell told the Senate Banking Committee, which is holding its hearing on Powell's re-nomination by President Joe Biden for a second four-year term as Fed chair.
Before he spoke, Powell received expressions of bipartisan support from the chair of the committee, Democratic Sen. Sherrod Brown from Ohio, and Pennsylvania Sen. Pat Toomey, the senior Republican on the panel.
“The president is putting results over partisanship, re-nominating a Federal Reserve chair of the other political party,” Brown said. “As chair, together with President Biden, he has helped us deliver historic economic progress.”
“There is broad bipartisan backing for Chairman Powell’s re-nomination," Toomey added.
Inflation has soared to the highest levels in four decades, and on Wednesday the government is expected to report that consumer prices jumped 7.1% over the past 12 months, up from November's 6.8% year-over-year increase.
Powell's nomination is likely to be approved by the committee sometime in the coming weeks and then confirmed by the full Senate with bipartisan support. But members of Congress are sure to interrogate Powell on whether the Fed can successfully rein in inflation without slowing the economy so much that it falls into a slump or even a recession.
Economists and former Fed officials are increasingly raising concerns that the Fed is behind the curve on inflation. Last Friday's jobs report for December, which showed a sharp drop in the unemployment rate to a healthy 3.9%, and an unexpected wage increase, has helped fan those concerns. While lower unemployment and higher pay benefit workers, those trends can potentially fuel rising prices.
At the Fed's most recent meeting in December, Powell said the central bank is rapidly accelerating its efforts to tighten credit with the goal of reining in inflation. The Fed will stop buying billions of dollars of bonds in March, ahead of its previously announced goal of doing so in June. Those bond purchases have been intended to encourage more borrowing and spending by lowering longer-term rates.
Fed officials now expect to raise short-term interest rates three times this year, a sharp shift from September, when they were divided over doing it even once. Economists increasingly expect them to raise rates at least four times in 2022.
Powell also said in his prepared remarks that the U.S. job market is “strong” and the economy is “expanding at its fastest pace in many years.” But he also conceded that the economy has suffered some longer-term damage from the pandemic.
“We can begin to see that the post-pandemic economy is likely to be different in some respects,” the Fed chair said. “The pursuit of our goals will need to take these differences into account.”
Powell has previously said that the Fed's initial goal was to restore the economy and job market to pre-pandemic levels, when the unemployment rate had fallen to a 50-year low of 3.5% and the proportion of Americans either working or looking for work was higher than it is now.
But more recently, Powell has acknowledged that many of the people who stopped working or seeking jobs in the pandemic are unlikely to return anytime soon. Millions of older Americans retired earlier than they likely would have without COVID, and many people are foregoing jobs to avoid getting infected.
That has left businesses chasing fewer workers to fill more than 10 million open jobs, a near-record, and has forced them to rapidly increase hourly pay. Rising pay could fuel more spending, possibly pushing prices higher.