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Fed to use tools for price stability if inflation moves higher, chair says

Fed to use tools for price stability if inflation moves higher, chair says
Economic activity restrained by supply constraints, bottlenecks, says Jerome Powell

By Ovunc Kutlu

ANKARA (AA) - The US Federal Reserve would use monetary policy instruments to achieve price stability if inflation moves beyond levels of its target, Fed Chair Jerome Powell said Wednesday.

"If we were to see signs that the path of inflation, or longer-term inflation expectations, was moving materially and persistently beyond levels consistent of our goal, we would use our tools to preserve price stability," he said at a news conference after the Fed kept its benchmark interest rate unchanged. He added that tapering will start later this month.

"Monetary policy will continue to provide strong support to the economic recovery," Powell said, adding economic growth in the US should pick up this quarter, resulting in strong growth for the year as a whole.

Powell said the Fed is aware of disruptions caused by the pandemic and the reopening of the US economy. He noted that the bank will ensure its monetary policy would address risks stemming from those.

The chair said the surge in coronavirus cases from the delta variant has negatively affected travel and leisure, adding "economic activity has also been restrained by supply constraints and bottlenecks."

"Supply constraints have been larger and longer-lasting than anticipated," he said, but stressed that higher inflation is mostly related to supply and demand imbalances, the uneven reopening and ongoing effects of the coronavirus.

Powell said the Fed's tools cannot ease supply constraints and the US economy will adjust to supply and demand imbalances and as it does, inflation will decline to levels much closer to the bank's 2% longer-run goal.

"It is very difficult to predict the persistence of supply constraints or their effects on inflation," said Powell. "Global supply chains are complex, they will return to normal function. But, the timing of that is highly uncertain."

He said labor market conditions have continued to improve and the demand for workers remains very strong.

Noting that the latest unemployment rate was 4.8% in September, Powell said the figure "understates the shortfall in employment, particularly as participation in the labor market remains subdued."

The Fed Chair said the participation of prime-age individuals in the labor market is well below pre-pandemic levels, mostly due to caregiving needs and ongoing concerns about the coronavirus, which results in employers having difficulties in filling job openings.

source: News Feed
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