On Tuesday, the Federal Reserve Chairman Jerome Powell was grilled over inflation during his testimony before the Senate as he appeared to be confirmed for a second term as the United States’ top central banker.
Jerome Powell began his testimony in the renomination hearing by addressing the Climate Stress Scenario. He said that the ‘Climate Stress scenario tests would be critical tools going forward.’
Jerome Powell, in prepared remarks, acknowledged the soaring inflation and said that it had squeezed the U.S. households, mainly the low-income ones.
“A large slice of the income of less earning people is eroded by the rising price pressures. We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing and transportation,”
Powell gave a lesson on demand and supply to the U.S. Senate, explaining that inflation is primarily because of the pandemic-related disruptions which have caused a mismatch between demand and supply. However, Powell said that if the federal reserve has to increase the rates again, they will do so.
“We have very strong demand in areas where supply is constrained, particularly around goods, particularly around things like cars,”Powell explained.
He said that the Federal Reserve is keeping a close watch on the wages. The economy, however, does not need any accommodative policy, according to Jerome Powell. This year the federal reserve looks forward to moving towards the usual policies. However, ‘It is a long road to normal for the monetary policy,’ as the Federal Reserve Chairman stated.
“If we have to raise interest rates more over time, we will, as high inflation is a severe threat to the achievement of maximum employment and to achieving a long expansion that can give us that.”
Jerome Powell, Chairman, Federal Reserve, said.
In December last year, the U.S. economy added a disappointing number of jobs, but the unemployment rate came down to 3.9%, almost around 3.5%, which was the pre-pandemic level. Jerome Powell also addressed the labor supply issue and accused inflation of a significant hindrance to maximum employability.
Balance-sheet issues will yet again be discussed in the January meeting. 2,3,4 meetings might be needed to decide about raising the balance sheet.
He also addressed the Senate’s concerns over the cryptocurrency regulations, stating that the ‘Report on digital currencies is ready to go.’ Powell also said that the ‘Stable coins could co-exist with a central bank digital currency.
In November, President Joe Biden tapped Powell to serve a second term as the Federal Reserve’s chairman. During his first term, Powell had taken the economy out of the nation’s fastest and deepest dive during the Covid-19 pandemic.
After the testimony, the stock market jumped, somehow diminishing the earlier losses, as Powell pledged that the central bank would not hesitate to raise the interest rates further if the inflation persists.