Federal Reserve Chairman Jerome Powell appears to be having some difficulty in figuring out whether spiking inflation will continue to be a problem and whether it will be necessary to taper the Fed’s $120 billion purchase of Treasury and mortgage bonds for the foreseeable future. Following the two-day meeting of the Federal Open Market Committee (FOMC), Powell had to give a press conference after the FMOC said it will have to make two rate hikes in 2023, sooner than anticipated, from the current level of near zero. The Fed also said it expected inflation to rise to 3-4% this year, higher than earlier forecasts, the Washington Post reported this afternoon. Markets got jumpy as a result.
Yes, “there is a lot of uncertainty,” Powell intoned. “Is there a risk that inflation will be higher than we think?” he asked. “Yes, but we do not expect that though. That is not our base case, and in that we’re joined by many other forecasters,” Bloomberg reported him as saying. He expressed confidence that, as soon as bottlenecks from the reopening economy are worked out and fiscal stimulus fades, price pressures will fade away. In the unlikely event that inflation does persist, the Fed,he promised, will be ready to jump in with its “tools.”
