Federal Reserve Chair Jerome Powell admits that “we now better understand how little we understand about inflation” and insists the 41-year high in prices was “unanticipated”.
- “I think we now understand better how little we know about inflation,” said the Chair at the European Central Bank (ECB) forum in Sintra, Portugal
- “It was not foreseeable”
- “It’s not very reassuring,” quipped Francine Lacqua of Bloomberg TV
- Powell said there was “no guarantee” the central bank could rein in runaway inflation without hurting the job market
Chairman Jerome Powell said in a comment Wednesday that the Federal Reserve has learned over the past year “how little we understand inflation.”
“I think we now understand better how little we know about inflation,” said the Chair at the European Central Bank (ECB) forum in Sintra, Portugal. “That was unforeseen.”
“It’s not very reassuring,” quipped Francine Lacqua of Bloomberg TV.
Powell said there was “no guarantee” the central bank could rein in runaway inflation without hurting the job market.
Jerome Powell said in a comment Wednesday that the Federal Reserve has learned over the past year “how little we understand inflation.”
“I think we now understand better how little we know about inflation,” said the Chair at the European Central Bank (ECB) forum in Sintra, Portugal. “It was not foreseeable”
He reiterates his hope that the Fed can walk the fine line of containing inflation without triggering a recession.
“We believe we can do it. That’s our goal,” he said, adding that the Russian invasion of Ukraine has made work difficult due to food, energy and chemical shortages.
“We are committed to this and will manage to bring inflation down to 2%. There will most likely be some pain in the process, but the worst pain is not addressing this high inflation and allowing it to continue,” Powell added.
Inflation in the US is 8.6 percent, the highest since 1981. Prices are rising 5.2 percent in France, 7.6 percent in Germany and 10 percent in Spain. Inflation in the UK is 9.1 percent.
Both the ECB and Fed have been slow to recognize inflation’s lingering presence over the past year, with Powell and much of the Biden administration long insisting it would be “temporary.” Officials have long believed inflation was simply a matter of supply chain issues, which would flatten out as the economy emerges from Covid-19 lockdowns.
Powell said last week that while European inflation was more focused on rising energy costs as a result of the Russia-Ukraine war, US price hikes reflected a supply and demand problem in many sectors.
“If you look at comparably sized, advanced economies like ours, you’ll see inflation rates that are quite similar to ours and in some cases higher or in some cases lower… But there are important differences in characteristics,” he said. “For us, it’s more about the demand. I would say that most of the others are more concerned with energy prices and things like that.”
Earlier this month, the Fed raised interest rates by 0.75 percent to a range of 1.5 percent to 1.75 percent. The European Central Bank is behind the Fed but said it would raise rates for the first time in 11 years in July and again in September to target 8.1 percent inflation in the 19 countries that use the euro.
Economists are increasingly concerned that higher interest rates could push the economy into recession.
However, Powell pointed to a strong labor market — unemployment is at 3.6%, a low in nearly half a century — and noted that most households and businesses had healthy savings.
“Overall,” he said, “the US economy is well positioned to withstand tighter monetary policy.”