Fed Chair: Could Take Years to Hit Inflation Target

Fed Chair: Could Take Years to Hit Inflation Target


In his second day of testimony before Congress this week, Federal Reserve Chair Jerome Powell told lawmakers that he is not worried about a persistent rise in inflation anytime soon.

“We live in a time where there is significant disinflationary pressures around the world and where essentially all major advanced economy’s central banks have struggled to get to 2%,” Powell told the House Financial Services Committee Wednesday.

Significant slack in the labor market plays a key role in the dynamic, Powell said, explaining that “our policy is accommodative because unemployment is high and the labor market is far from maximum employment.”

While some asset prices have risen recently, including those for cars and some types of technology, the increases are likely temporary. “That doesn’t necessarily lead to inflation because inflation is a process that repeats itself year over year over year,” he told the committee.

If short-term inflation does spike in the spring as the service economy reopens and consumers start spending down their ample savings, Powell assured lawmakers that the Fed has “the tools to deal with it.”

A goal, not a worry: Powell reiterated that the Fed’s goal is to push inflation up to its 2% target range, something the central bank has been unable to do for decades. “I’m confident that we can and that we will, and we are committed to using our tools to achieving that,” he said. “We believe we can do it, we believe we will do it.”

A team effort: Other Fed leaders expressed dovish stances on inflation Wednesday. Fed Vice Chair Richard Clarida told the American Chamber of Commerce in Australia that while the outlook is improving, “it will take some time for economic activity and employment to return to levels that prevailed at the business cycle peak reached last February.” In the meantime, the Fed will maintain policies that are intended to push inflation “above 2 percent for some time," Clarida said.

Speaking to an economics class at Harvard University, Fed Governor Lael Brainard said that “the economy remains far from our goals in terms of both employment and inflation, and it will take some time to achieve substantial further progress,” which would likely depend upon widespread vaccination distribution. “Inflation remains very low, and although various measures of inflation expectations have picked up recently, they remain within their recent historical ranges,” she said. “I will carefully monitor inflation expectations, it will be important to see a sustained improvement in actual inflation to meet our average inflation goal,” she added.

Why it matters: The Fed chief once again is providing Democrats with a powerful defense against charges that their proposed $1.9 trillion Covid-19 relief bill will spark a destructive increase in inflation.