Testifying before a House hearing today, Federal Reserve Chairman Jerome Powell said that a recent rise in inflation is transitory and that a “perfect storm” of strong demand and weak supply due to the reopening of the economy is a substantial cause.
“These effects have been larger than we expected, and they may turn out to be more persistent than we expected, but the incoming data are very much consistent with the view that these are factors that will wane over time and then inflation will move down toward our goals,” Powell told the Select Subcommittee on the Coronavirus Crisis.
Powell added that increases in oil prices passed through to consumers, very low readings from early in the pandemic falling out of calculations and supply bottlenecks were other causes of recent inflation. Speaking about the sluggish labor market, Powell told the committee that there are several reasons people are citing for not rejoining the workforce, including fear of being infected or passing along the infection, schools remaining closed and enhanced unemployment benefits.
“The very quick job gains of the early recovery essentially involve going back to your old job, that’s not so much what’s happening now. Now it’s actually finding new jobs, and that’s a matching function that is more labor intensive and time consuming and there may be a bit of a speed limit on that. We expect, though a lot of progress,” said Powell.
