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Federal Reserve Now Says Inflation Longer Than Expected

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Federal Reserve officials are now saying that inflation will run longer than expected. However, the agency remains insistent that price increases will slow down in 2022 as the pandemic eases. 

RELATED: Powell Downplays Inflation Fears But Admits Uncertainty

Federal Reserve Chairman Jerome Powell Admits Inflation May Last Longer Than Expected

In his Tuesday remarks, Federal Reserve Chairman Jerome Powell warned lawmakers that the reasons for the increase in inflation rates will linger longer than expected.

In his speech to the Senate Banking Committee, Powell said that US economic growth continues to pick up. However, The economy also continues to face rising prices due to supply chain issues.  

Powell remains confident that pressure will return to the original 2% target by 2022. “Inflation is elevated and will likely remain so in coming months before moderating.

As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors. These effects have been larger and longer-lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal,” he said. 

Federal Reserve Will Pull Back On Some Stimulus

Congress mandates that the Federal Reserve chairman give testimony regarding the agency’s economic response to the COVID-19 pandemic. Powell is set to speak to the House Financial Services Committee on Wednesday.

During their policy meeting last week, Fed officials said that they will start pulling back from the stimulus efforts they enacted since last year. This includes tapering bond purchases made to prop up the economy.

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However, officials noted that reducing asset purchases does not automatically mean a rise in interest rates. “We at the Fed will do all we can to support the economy for as long as it takes to complete the recovery,” Powell added.

Inflation Rate Adjusted to 4.2% By End of 2021

As a result of the deliberations, the policy meeting concluded that the annual rate at the end of the year will settle at 4.2%. This is a 0.8% adjustment from the 3.4% they set last June. Despite the adjustments for this year, the Fed remained hopeful for a 2.2% inflation rate next year.  

Powell attributes the rising inflation to supply-chain bottlenecks and shortages. IN return, these bottlenecks are a direct result of the pandemic. “These bottleneck effects have been larger and longer-lasting than anticipated,” he explained.

“While these supply effects are prominent for now, they will abate. And as they do, inflation is expected to drop back toward our longer-run goal.”

Inflation Higher Than Expected

As a result of the supply backlogs, inflation rates are going wild. The expected rate of 4.2% is more than twice as high as the Fed’s long-term target projections of 2%. With present interest rates at near zero, policymakers are now seriously considering raising interest rates to ease the pressure. 

From seven members in June, nine members of the policy committee are now in favor of raising rates by next year. The remaining nine members expect to raise interest rates after 2023 or later.

In addition, the committee members believe that the US economy is on target to grow by 5.9% this year. This is noticeably 1.1% lower than earlier projections of 7% three months ago. 

“What happened was, Delta happened,” Powell said.

Will Biden Reappoint Powell As Federal Reserve Chairman?

Powell’s four-year term is nearing its end. It expires this coming February unless President Joe Biden decides to renew his appointment. Powell, a Republican, is an appointee of former President Progressive Democrats are urging Biden to get a new chairman such as Lael Brainard.

Brainard currently serves on the Fed’s Board of Governors. When asked about his reappointment, Powell said he’s just focusing on doing his job. 

Watch CNBC Television’s video reporting that Fed Chair Jerome Powell will testify in front of Congress tomorrow:

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6 Comments

6 Comments

  • Joe says:

    It does not matter who is in, politicians like to think they run the economy, not so. It is the private sector, the capitalist segment of society, that dictates which way economy will go for long haul. The government, with its socialist agenda/vote buy out, can and will disrupt the economy with its wild and irresponsible spending but it’s only for short term. By government it is meant, the Republican and the Democrats, both irresponsible money managers that have no business deciding how to spent our money. I’d like to see myself deciding, on my tax return, how to spent my tax money. Give me freedom to choose how much money I want to go to military, schools , health care, infrastructure, etc.

  • BBA says:

    The Untied States of America is finished as a Free Republic and the sooner we realize that as a lazy do nothing about it Nation the sooner we can get our heads out of our own asses and start to rebuild what was not broken in the first place!!

  • Michelle says:

    Joe Biden needs to be impeached. He is the worst president ever. And he is ruining this country!

  • Socialism at Best says:

    Just remember, if this 5,5 trillion dollar bill passes government will have access to everyone’s bank accounts! I more than 600.00 dollars gets moved in or out of anyone ones of your bank accounts they will be required to report to the government This socialism at best!

  • Linn Walker says:

    HOW can the Fed taper?? The government MUST have inflation to keep the payments on the interest of the national debt “manageable”. Even the most aggressive tax hikes will fall far short of providing the necessary amount of cash required to keep paying the interest on the debt. The government is trying to reach into our IRA accounts and change the rules to essentially mandate that all of our IRA money be forced either into the market directly (via stock purchases), or into Treasuries ‘for investor safety’ 9but actually to fund payments on the interest for a while longer). Look at the reverse repo chart on FRED, and see the hockey stick. That money is OUR BANK SAVINGS BEING RECYCLED TO KEEP THE TREASURY IN CASH AND ABLE TO PAY ITS OPERATING EXPENSES AND THE INTEREST ON THE DEBT DAY BY DAY. Over 40% of our bank savings have thus been STOLEN and spent! If enough people realized this and started taking withdrawls of the cash they thought they had safely stored in their bank accounts, the run would quickly collapse our increasingly hollowed out banks. The Fed is firmly wedged between a rock and a hard place because all the easy sources of cash to steal are gone, and there are no new avenues from which to steal opening up, so inflation is one of the few ways they have left to service the debt. Of course, inflation is politically unpopular, but so are the options of raising taxes and imposing austerity. Foreign governments are refusing to purchase bonds in sufficient quantity to cover our debt servicing needs, and private investors are holding off until real yields go positive again, so the Fed is directly monetizing most of our debt. When they run out of our money with which to do that, they’ll finally turn to creating true fiat. Inflation will explode and Treasuries will be rejected unless interest rates rise substantially – which will push the amount owed to service the debt up so high that inflation will have to go Weimar. The plebes will not be pleased. Default, total police state, severe revaluation (sudden depreciation) of the currency, replacement of the currency with new currency like FedCoin (which will be manipulated to impose deeply negative interest rates on everyone), or switching to SDR’s – or a combination of some of the above – will be the only options left. It’s going to be ugly no matter which route is chosen. Holding PM’s, or possibly cryptos (if they’re not outlawed), or real estate, will be the only options available to weather the storm. It’s gonna get rough out there, folks.

  • Free Marine Lt Col Stuart Scheller!!!! says:

    This is happening all before our eyes in less than 9 months of this demented old circus monkey was put into the white house. The dollar store will now be raising there prices from $1.00 to $1.25 to a $1.57 for those whom shop there which I am pretty sure it’s no one in our government. You add that to gasoline prices up over $1.00 a gallon, food prices have jumped like I have never seen in such a short period of time! Clothing up! Household goods up! It’s going to get rough. The best we all can hope for at this point that the 5.5 tillion dollar bill the progressive Dems are trying to pass does not happen and goes to hell where it should stay! Also, Free Marine
    Lt Col Stuart Scheller…! Jailed for speaking out over biden’s terrible Afghanistan withdrawal which killed 13 American soldiers as well as many others!!!!

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