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Free AccessPowell Reaffirms View That Inflation Spike to be Temporary
Q: Can you tell us what is different this time re inflation vs periods like the 60s where inflation got out of control? Why are you confident given lags in monetary policy that the Fed can get ahead of inflation and make sure it doesn't go too far above 2%?
- A: Let me start by saying we're strongly committed to achieving our objectives of maximum employment and price stability. Our price stability goal is 2% inflation over the longer run. We believe having inflation average 2% over time will help anchor inflation expectations at 2%.
- We're making our way through an unprecedented series of events in which a synchronized global shutdown is giving way to wide spread reopening around the world. Vaccinations are now wide spread and the economy is beginning to move ahead with real momentum.
- During this time of reopening, we are likely to see some upward pressure on prices. But those pressures are likely to be temporary as they are associated with the reopening process. An episode of one-time price increases as the economy reopens is not likely to lead to persistent year over year inflation into the future, inflation at levels that are not consistent of our goal of 2% inflation over time. It is the Fed's job to ensure that that does not happen.
- If contrary to expectations inflation were to move persistently and materially above 2% in a matter that threatened to move longer-term inflation above 2%, we would bring in tools to bring expectations down to consistent levels.
- We're very familiar with the history of the 1960s and '70s. We know our job is to achieve 2% inflation over time. We're committed to that and will use our tools. That's a very different situation than what we had in the 1960s. Many differences actually.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.