Powell Signals Fed in No Rush to Tighten, Downplays Risk of Runaway Inflation By Investing.com

By Yasin Ebrahim

Investing.com – Federal Reserve Chairman Jerome Powell said the central bank would allow the labor market to run hot and inflation to move above its 2% target over time, reaffirming market expectations that the central bank is in no rush to raise rates.

Powell acknowledged the potential of pent-up consumer demand boosting inflation as the pandemic recedes, but downplayed the risk of runaway inflation, indicating the post-pandemic inflation pick up will likely be a one-off.

“The real question is, how large is that effect going to be and will it be persistent … clearly a one time increase in prices is very large is very unlikely to meet persistently high inflation,” Powell said. Inflation would “need to average 2% over time” to be anchored to the central bank’s target.

The Fed Chair continued to highlight that inflation will key driving policy decisions, and indicating that the labor market would be allow to run hot prompting tightening on monetary policy. He made his remarks Thursday during a virtual event sponsored by Princeton’s Bendheim Center for Finance.

“If the rate of unemployment were to be well below our current estimates of the natural rate of unemployment that wouldn’t be a reason to raise interest rates, unless we see troubling inflation or other imbalances that could threaten achievement out mandate,” Powell said.

Powell’s remarks come just a day after Fed Vice Chairman Richard Clarida said the central bank won’t raise rates until inflation reaches 2%.