Federal Reserve Chairman Jerome H. Powell on Tuesday disputed President Biden’s claim that supply-chain problems have eased, telling Congress that persistent bottlenecks are responsible for record-high inflation that could prompt the central bank to raise interest rates more than planned.
In a confirmation hearing for a second four-year term, Mr. Powell told the Senate Banking Committee that high inflation has become a “severe threat” to healthy employment levels. He said stalled shipping and delivery networks are still hurting the economy by contributing to the biggest price increases in consumer goods in four decades.
“We’re not seeing really a lot of progress,” Mr. Powell testified. “Look at Long Beach and L.A., the two big ports on the West Coast for Asia, the number of ships at anchor is still at a record level.”
Mr. Biden boasted before Christmas that “the much-predicted crisis didn’t occur” on the availability of goods for the holidays. White House Chief of Staff Ron Klain recently called the supply-chain crisis “an overhyped narrative.”
But Mr. Powell said of the current inflationary pressures, “I wouldn’t say things have changed much.”
Mr. Powell, who has broad bipartisan support for another term, said the Fed could raise interest rates even more than currently anticipated this year to address inflation. Central bank officials are forecasting three increases in the benchmark short-term rate this year and say they will also start shrinking the Fed’s nearly $9 trillion balance sheet.
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“If we have to raise interest rates more over time, we will,” he said. “High inflation is a severe threat to the achievement of maximum employment.”
Mr. Powell said he expects high inflation to last “into the middle” of this year. Asked by Sen. Richard Shelby, Alabama Republican, why he predicted last year that high inflation would be “transitory,” Mr. Powell said Fed officials didn’t expect the supply-chain crisis to last into the new year.
“We thought that the supply-side bottlenecks and shortages would be alleviated much more quickly than they have been,” he said. “That’s not what happened. We’re not seeing really a lot of progress.”
Consumer prices soared more than 6% last year, and a key report due on Wednesday is expected to show that inflation hit 7.1% in December, the highest in 40 years and far above the Fed’s target of 2%.
The Fed chairman said a key solution to reducing inflation — solving the supply-chain problems — is essentially out of the central bank’s control.
“That’s going to be a big part of getting inflation back down,” Mr. Powell said.
Sen. Steve Daines, Montana Republican, said inflation has resulted in real wages falling 1.9% in 2021. He blamed congressional Democrats and Mr. Biden for pushing through a “reckless” $1.9 trillion COVID-19 relief package last March without any Republican support as the economy was picking up steam.
“Frankly, we should be thankful at this moment the most recent multitrillion-dollar, reckless tax-and-spending spree package did not pass last year,” Mr. Daines said, referring to the president’s stalled $1.8 trillion social welfare bill. “That would only worsen the problems we are seeing today.”
Several Republicans on the panel implored Mr. Powell to resist what they called the administration’s efforts to politicize the central bank by crafting monetary policies to address climate change and racial justice. Sen. Pat Toomey of Pennsylvania called those issues “politically charged concepts that are irrelevant to [the Fed’s] mandate.”
“If this politicization continues unchecked, it will not end well for the Fed or for independently driven monetary policy,” Mr. Toomey said.
Several lawmakers also criticized the Fed for a recent scandal in which Vice Chairman Richard Clarida resigned from his post two weeks early. Mr. Clarida’s move followed reports that he corrected a financial disclosure in late December to show that he sold a stock fund and quickly repurchased it before the Fed announced new pandemic-related rescue programs.
Mr. Powell said the Fed is preparing to release stricter trading rules for its officials “imminently.”
Several Republicans on the committee voiced their support for a second term for Mr. Powell. Committee Chairman Sherrod Brown, Ohio Democrat, said Mr. Powell’s renomination “represents another step in President Biden’s efforts to rebuild the economy.”
“The president is putting results over partisanship … renominating a Federal Reserve chair of the other political party,” Mr. Brown said.
He said the Fed shouldn’t pull back on its support of the economy during the pandemic.
“When people talk about cooling off the economy, what they really mean is making it harder for people to find jobs, and stopping paychecks from growing,” he said. “The cooling off never seems to extend to corporate profits or executives’ [pay].”
• Dave Boyer can be reached at dboyer@washingtontimes.com.
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