Federal Reserve Chair Jerome Powell on Thursday downplayed the idea that government pandemic aid was the key driver of US inflation, instead blaming a confluence of global problems, including the war in Ukraine.
While stimulus spending was a factor, “a lot of the price increases that you saw were because supply couldn’t meet demand” and “when demand meets firm supply, prices go up,” Powell told the legislature.
US inflation is at a 40-year high and has picked up pace in recent months as the aftermath of Russia’s invasion of Ukraine has pushed up fuel and food prices, with gasoline more than for the first time $5 a gallon – a burden on American families.
Opposition Republicans have blamed the $1.9 trillion US bailout plan approved by President Joe Biden last year for the drastic price hikes.
But Powell, testifying before a House committee on Thursday, and others have noted that inflation is a global problem.
Democratic lawmaker Gregory Meeks noted that price hikes were mostly driven by “the supply chain, the China shutdown – the full shutdown, the zero Covid policy, Russia’s war in Ukraine, Covid.”
“Isn’t it just a massive storm of everything that contributes to and causes inflation around the world?” Meeks asked.
“Pretty much. That’s a pretty good description,” Powell said on the second day of his semi-annual testimony before Congress.
And some of those factors are “out of our control — for example, the price of oil and most food prices.”
– “Unconditional” fight against inflation –
The Fed said for months the price pressures would be temporary, but Powell acknowledged that with hindsight the Fed underestimated rising inflation.
The US Federal Reserve last week announced the biggest rate hike in almost 30 years and promised more similar moves as part of its aggressive push to quench inflationary fires.
The moves have raised concerns that the Fed could trigger a recession in the world’s largest economy.
Powell said the pledge to bring inflation back to 2% from 8.6% in May was “unconditional,” but warned the Fed lacked “precision tools” and acknowledged the risk of a downturn exist.
Avoiding that “has become much more difficult with the events of the last few months, especially the war,” he said.
But even if unemployment moves above the current historic low of 3.6 percent, even an unemployment rate of 4.3 percent “is still a very strong job market”. he noticed.
And the United States, unlike some other countries, “has a very strong economy” and Fed policymakers “have the tools to deal with demand,” Powell said.
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