Powell Sticks to New Hawkish Stance, Saying Inflation Might Not Slow in 20222

Some investors were hoping Federal Reserve chairman Jerome Powell would attempt to walk back remarks he made yesterday that were interpreted as a pivot away from raising employment toward fighting inflation.

Instead, Powell doubled down on his concerns about inflation, saying the Fed cannot be sure that inflation will fade in the second half of next year as many economists expect.

For most of this year, Powell had argued that inflation was rooted in supply-chain constraints that would ease as the virus retreated, spending rebalanced away from the pandemic-era focus on goods purchases, and the economy adjusted. Now Powell says that the outlook on all those fronts is much murkier, although he still thinks that an easing of inflation is “likely.”

“The point is, we can’t act as if we’re sure of that,” Powell told the House Financial Service Committee on Wednesday. “We’re not at all sure of that. Inflation has been more persistent and higher than we’ve expected.”

Inflation has been running at the fastest rate of price increases in three decades and recent indicators suggest that it is still accelerating. What started out as “narrow” inflation concentrated in just a few products, has become widespread throughout the economy.

Powell also sounded a Republican populist note on Wednesday, downplaying the risk that rising wages would create what economists call a wage-price spiral that pushes inflation up.

“We like to see wages move up,” Powell said. “At this point, we don’t see them moving up at a troubling rate that would that would tend to spark higher inflation, but that’s something we’re watching very carefully.”

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