Federal Reserve Chairman Jerome H. Powell told Congress on Wednesday that he will recommend a short hike in interest rates in two weeks in a bid to hold down record-high inflation, testifying in a hearing where Republicans blamed Democrats and President Biden’s high spending for the steepest price increases in four decades.
“I’m inclined to propose and support a 25 basis-point rate hike,” Mr. Powell told the House Financial Services Committee. He also said the central bank also will make “good progress” on a plan to shrink its balance sheet.
He said, “We would be prepared to move more aggressively,” if high inflation persists.
“With inflation well above 2% and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month,” Mr. Powell said.
Inflation recently reached an annual rate of 7.5%, the highest in about 40 years, raising prices for a variety of consumer goods such as gasoline and food. The cost of gas is up more than 40% in the past year.
The Fed is widely expected to raise its benchmark short-term interest rate several times this year, beginning with its March 15-16 meeting. The action will increase the costs for consumers of borrowing on auto loans, home mortgages and credit cards.
Mr. Biden said in July that inflation would be “transitory.” On Wednesday, Mr. Powell couldn’t say how long the high inflation will last.
“We continue to expect inflation to decline over the course of the year,” he told lawmakers. “Inflation is too high. We’re working on it. It’s going to take some time, but we’re going to get it back under control.”
Mr. Powell also cautioned that the financial consequences of Russia’s invasion of Ukraine are “highly uncertain” and need to be monitored closely.
Democrats and Republicans on the House committee disagreed sharply on the causes of high inflation.
Rep. Patrick McHenry, North Carolina Republican, said the high inflation is “due to Democrats’ reckless spending,” referring to last year’s $1.9 trillion COVID-19 relief package. He said Mr. Biden’s stalled $1.75 trillion Build Back Better legislation would only worsen inflation if approved.
Rep. Pete Sessions, Texas Republican, suggested that overly generous unemployment benefits last year, teachers’ unions resisting returning to work and supply chain shortages combined to create “low labor supply.”
“These are all hand-in-hand, glove-and-glove together, in my opinion,” Mr. Sessions told Mr. Powell. “And I think that this administration, I think the Democratic Party, I think this Congress has made friends with inflation to encourage it.”
He urged Mr. Powell to persuade administration officials and congressional Democrats “that they have actually made friends with and are continuing inflation.”
But committee Chairwoman Maxine Waters, California Democrat, blamed shortages caused by the COVID-19 pandemic and corporate greed for the spike in inflation.
“Families across the nation are facing higher prices because of inflation, created not only by pandemic related supply chain problems, but also giant corporations taking advantage of economic conditions to pass on higher prices to consumers,” she said.
Ms. Waters also said increases in housing prices and rent have been a key driver of inflation.
“These are the true drivers of inflation, according to experts, despite repeated efforts on the part of Republicans to falsely blame pandemic relief and emergency stimulus as a primary cause,” she said.
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By Dave Boyer
The Washington Times
Federal Reserve Chairman Jerome Powell told Congress Wednesday that he will recommend a short hike in interest rates in two weeks in a bid to hold down record-high inflation, testifying in a hearing where Republicans blamed Democrats and President Biden’s high spending for the steepest price increases in four decades.
“I’m inclined to propose and support a 25 basis-point rate hike,” Mr. Powell told the House Financial Services Committee. He also said the central bank also will make “good progress” on a plan to shrink its balance sheet.
If high inflation persists, Mr. Powell said, “We would be prepared to move more aggressively.”
“With inflation well above 2% and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month,” Mr. Powell said.
Inflation recently reached an annual rate of 7.5%, the highest in about 40 years, raising prices for everything from gasoline to food. The cost of gas is up more than 40% in the past year.
The Fed is widely expected to raise its benchmark short-term interest rate several times this year, beginning with its March 15-16 meeting. The action will increase the costs for consumers of borrowing on auto loans, home mortgages and credit cards.
President Biden said in July that inflation would be “transitory.” On Wednesday, Mr. Powell couldn’t say how long the high inflation will last.
“We continue to expect inflation to decline over the course of the year,” he told lawmakers. “Inflation is too high. We’re working on it. It’s going to take some time, but we’re going to get it back under control.”
Mr. Powell also cautioned that the financial consequences of Russia’s invasion of Ukraine are “highly uncertain” and need to be monitored closely.
Democrats and Republicans on the House committee disagreed sharply on the causes of high inflation.
Rep. Patrick McHenry, North Carolina Republican, said the high inflation is “due to Democrats’ reckless spending,” referring to last year’s $1.9 trillion COVID-19 relief package. He said Mr. Biden’s stalled $1.75 trillion Build Back Better legislation would only worsen inflation if approved.
Rep. Pete Sessions, Texas Republican, suggested that overly generous unemployment benefits last year, teachers’ unions resisting returning to work and supply-chain shortages combined to create “low labor supply.”
“These are all hand-in-hand, glove-and-glove together, in my opinion,” Mr. Sessions told Mr. Powell. “And I think that this administration, I think the Democratic Party, I think this Congress has made friends with inflation to encourage it.”
He urged Mr. Powell to persuade administration officials and congressional Democrats “that they have actually made friends with and are continuing inflation.”
But committee Chairwoman Maxine Waters, California Democrat, blamed shortages caused by the COVID-19 pandemic and corporate greed for the spike in inflation.
“Families across the nation are facing higher prices because of inflation, created not only by pandemic related supply-chain problems, but also giant corporations taking advantage of economic conditions to pass on higher prices to consumers,” she said.
Mrs. Waters also said increases in housing prices and rent have been a key driver of inflation.
“These are the true drivers of inflation, according to experts, despite repeated efforts on the part of Republicans to falsely blame pandemic relief and emergency stimulus as a primary cause,” she said.
Curtis Dubay, senior economist at the U.S. Chamber of Commerce, said inflation has “clear causes” that are broadly understood.
He cited supply and demand issues (a six-fold increase in spending on goods compared with spending on services since February 2020), supply-chain problems creating scarce goods, a worker shortage crisis in the U.S. creating 4.6 million job openings, and the Fed’s monetary policy that has pumped $5 trillion into the economy since the start of the pandemic.
“This enormous sum is slowly trickling from the financial economy into the real economy, which is pushing the price of goods and services up,” Mr. Dubay wrote in a blog post this week. “It will persist for a couple of years, even as the Federal Reserve moves to curb the effects.”
Mr. Biden has been vowing to ease supply chain problems, but Mr. Powell said in his testimony that “bottlenecks and supply constraints are limiting how quickly production can respond.”
“These supply disruptions have been larger and longer-lasting than anticipated, exacerbated by waves of the virus, and price increases are now spreading to a broader range of goods and services,” the Fed chairman said.
• This article is based in part on wire service reports.
• Dave Boyer can be reached at dboyer@washingtontimes.com.
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