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Federal Reserve (Fed) Chairman Jerome Powell admitted Tuesday that inflation is more worrisome and structural than it was earlier this year, after assuring in recent months that it was “transitory.”
“Yes, I think it’s fair to say that it is,” Powell responded at the Senate Banking Committee when asked by a lawmaker whether current inflation is more worrisome and structural now than it was a few months ago.
In addition, Powell said that supply chain problems in the U.S., one of the main reasons for high inflation, “have not only not gotten better, they’ve actually gotten worse.”
“Supply chain constraints are at the heart of inflation and they have worsened,” he asserted.
Thus, Powell acknowledged in his testimony before the senators that “it is likely” that inflation will remain high in the coming months before moderating.
In this regard, the Fed chairman announced that he would raise interest rates “if sustained inflation were to become a serious concern.”
“As the economy continues to reopen and spending picks up, we are seeing upward pressure on prices, particularly due to stagnant supply in some sectors,” Powell added.
Annual inflation eased in August by one-tenth of a percent to 5.3 %, in the first sign of a cooling in prices after months of sustained increases, although it still remains at very elevated levels.
In July, the bank headed by Powell placed the estimated growth for 2021 in the US economy at 7 % and inflation at the end of the year at 3.4 %.
On the other hand, Powell explained that the central bank could begin to reduce its $120 billion in monthly bond purchases at its next monetary policy meeting, scheduled for November 2 and 3.
At its last meeting last week, the Fed left interest rates unchanged, between 0 % and 0.25 %, but hinted that it could begin “soon” the withdrawal of monetary stimulus through the reduction in the volume of monthly bond purchases.