Federal Reserve Chairman Jerome Powell’s description of this year’s surge in U.S. inflation as “transitory” has become something of a running joke on Wall Street for its vague meaning.
On Thursday, Powell moved away from this formulaic language, providing some insight into the question of how long the factors pushing up prices might last.
Consumer price inflation was running at a 5.3% annual rate in August, well above the Fed’s target of 2% inflation as measured by the personal consumption expenditure index which the Fed prefers.
Republicans in Congress are using high inflation readings to argue against President Joe Biden’s plans to boost government spending dramatically.
At a House Financial Services Committee hearing on Thursday, Rep. Ted Budd, Republican of North Carolina, asked Powell when the residents of his district would feel “relief” from higher prices.
In response, Powell said that the economy is experiencing “a very unusual event” of supply-side restrictions.
“We expect that those will abate, that they’ll lessen, and over time inflation will come back down,” Powell said.
“Exactly when that will happen is not possible to say,” the Fed chairman added.
“But I would say we should be seeing some relief in coming months and over the course of the first half of next year,” Powell said.
Powell said inflation expectations “broadly speaking” are still at levels that are consistent with the central bank’s 2% inflation target.
Some analysts think the U.S. is headed into an era of high inflation.
Later on Thursday, Chicago Fed President Charles Evans said the supply shortages, fragmented supply chains and bottlenecks are almost like after World War II when the U.S. economy had to redeploy resources away from wartime production to consumer goods.
“There is no way to sugarcoat this. This is finding its way into higher prices that people are paying,” Evans added.
Appearing at the same hearing as Powell, U.S. Treasury Secretary Janet Yellen said interest rates are likely to remain low even in the face of higher inflation.
“Most economists believe there are deep structural reasons why low interest rates are likely to continue,” Yellen said.
The yield on the 10-year Treasury note TMUBMUSD10Y, 1.522% has risen steadily since last week’s Fed meeting and is now above 1.5%. That’s still below the 1.75% level seen in early April.