Political | Process

Federal Reserve Chairman Jerome Powell told Congress Tuesday that if the pace of price increases do not come down, the central bank will get more aggressive with raising short-term borrowing costs.

Tweet

• “If we see inflation persisting at high levels, longer than expected, if we have to raise interest rates more over time, then we will,” Powell said in a Senate Banking Committee hearing.

• Powell is facing the Senate for his renomination. President Joe Biden announced in November that he was tapping Powell for a second term at the helm of the central bank, with current Fed Governor Lael Brainard serving as vice chair (her confirmation hearing is scheduled for Thursday).

• The stakes are high for the Fed this year, with inflationary prints showing prices rising at a clip of almost 7% on a year-over-year basis.

• The Fed has spent the last year or so trying to figure out how much of those price increases are due to rising demand (which allows producers to raise prices) or constrained supply (in which COVID-disruptions increase the costs of production inputs).

• Powell said both appear to be contributing to high inflation, but the Fed chief acknowledged that demand is “very strong” at the moment.

• The Fed’s most potent tool remains interest rates, which the central bank has pinned to zero since the depths of the pandemic. Raising interest rates could address higher demand by making it more expensive to borrow. But higher borrowing costs likely would not do too much to address supply issues like shipping bottlenecks at the world’s ports.

SOURCE: YAHOOFINANCE