Powell; Supply Chain Disruptions are Increasing risks of Inflation

Federal Reserve Chairman Jerome Powell said during last Friday’s virtual meeting conference that “Supply-side constraints have gotten worse. The risks are clearly now to longer and more-persistent bottlenecks, and thus to higher inflation.” He expressed concerns over high-inflation and that the central bank should keep a close watch on price pressures.

The Fed hopes the price pressures would lower with time as the pandemic decreases. The Central Bank must offer more flexibility in the coming months and should create policies that cater to various scenarios.

The recently approved $2.8 trillion spending plan and the growing number of vaccinations across the country have help the economy recover. On the other hand, inflation has also gone up 3.6% in August which points to possible supply chain disruptions and labor shortages.

Jerome Powell has indicated that asset tapering will begin shortly of the $120 billion in Treasury and Mortgage debt. The exact date for winding down the stimulus plan is yet to be decided. In August’s speech, Powell explained his views on recent inflation, saying its “temporary.” Inflation has been seen in other sectors including energy, which means central banks could be increasing rates faster than expected.

The inflation rate has been recorded to be well over the 2% target of the Fed’s goal currently. Mr. Powell responded, “We see that. We know how painful that is for consumers. We think we can be patient and allow the labor market to heal. But at the same time, no one should doubt that we will use our tolls to guide inflation back down to 2%.”

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