Powell Says Is a Risk Inflation Will Be Higher Than They Think

Q: Re SEP, are we looking at a scenario of a slowing economy next year as with higher inflation?

• A: We are looking at an economy that will not have the degree of fiscal support, which is much less than it was this year. But you still have very strong growth well above the longer run potential output of the economy. Inflation is lower next year in all of our forecasts.
• The range of core PCE forecast for next year is 1.7-2.5, in 2022 and 2-2.3 in 2023. I can't remember the number, but it might be in the 3s, 3, 3.5% percent growth for next year. That is a really good year coming on the back of 7% growth year, a year with a lot of momentum, that will cause significant job creation.
• The economy is still growing, and growing at a very healthy rate. Different people have different estimates but broadly speaking economists think the economy has the potential to grow at 2% per year. If you are growing above that, then the unemployment rate should be declining, people should be being pulled into the labor force, wages should be going up, businesses should be investing.
• To answer the question a different way, is there a risk that inflation will be higher than we think? Yes, as I said earlier.
• We don't have any certainty about the timing or the extent of these effects from reopening. Therefore, we we think it's unlikely that they would materially affect the underlying inflation dynamics that the economy has had for a quarter of a century.
• The underlying forces around the globe that have created those dynamics are intact, and those are aging populations, low productivity, globalization, all those things that we think have held down inflation. When we get through this, we may be facing those same forces. Nonetheless, is there a risk that inflation will remain higher than we thought? Yes. If we see inflation moving above our goals to a extent, to a level or persistently enough, we would be prepared to use our tools to address that.