This particular inflation unique in history: Powell

For a second day, Federal Reserve Chairman Jerome Powell defended the central bank’s stance to keep providing support to the US economy even as inflation runs at uncomfortable levels. “This is a shock going through the system associated with the reopening of the economy and it’s driven inflation well above 2 per cent, and of course we’re not comfortable with that,” Powell told the Senate Banking Committee Thursday.

The Fed chair called the price developments “unique” in history and said the central bank is closely watching to see whether its expectation that the high inflation will prove temporary is correct, or whether it threatens to be longer lasting.

“So we’re really trying to understand the base case and also the risks,” he said. This is Powell’s second round of testimony this week on Capitol Hill. On Wednesday, he was peppered with questions about surging prices from lawmakers serving on the House Financial Services Committee.

Consumer prices soared in June by the most since 2008 and were up 5.4 per cent from the same month last year. Powell’s remarks before Congress are his last semi-annual testimony before President Joe Biden decides whether to give him another four years at the Fed helm or pick someone else. Powell’s tenure as chair expires in February.

The economy is recovering strongly from last year’s pandemicdriven swoon, with economists forecasting growth clocked in at a double-digit annualised pace in the second quarter.

Powell said he had not made up his own mind on the merits or demerits of a central bank digital currency, but he would want authorisation from Congress before taking any action to create one.

“I am legitimately undecided on whether the benefits outweigh the costs or vice versa,” Powell said during a hearing before the Senate Banking Committee. If the Fed were to issue its own digital currency, he said, “we would want very broad support in society and in Congress.”

“This is a shock going through the system associated with the reopening of the economy and it’s driven inflation well above 2 per cent, and of course we’re not comfortable with that”

“I am legitimately undecided on whether the benefits (of digital currency) outweigh the costs or vice versa”

JEROME POWELL, Federal Reserve Chairman