#Federal Reserve chair assures that inflation will pass

Federal Reserve Chairman Jerome Powell on Wednesday stuck to his position that inflation is temporary even as new data stoked concerns among Wall Street bigwigs that higher prices could be here to stay.

“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell said in prepared testimony that will be delivered later Wednesday before the House Financial Services Committee.

A strong rebound in demand led by Americans emerging from the pandemic has collided with pandemic-related production bottlenecks and shortages to send prices soaring, Powell said in his testimony, which served as his mandated semiannual update to Congress on the state of monetary policy and the economy.

But, he argued, those price increases “should partially reverse as the effects of the bottlenecks unwind.”

He added that the latest inflation data appears more severe than it is because the numbers are being compared with those from 12 months ago, when the pandemic had gutted the economy and pushed prices lower.

Powell has repeated that the current inflationary pressures throughout the economy are temporary and said that’s why the Fed won’t taper its ultra-easy monetary policy.

But on Tuesday, the Labor Department announced that its Consumer Price Index, which measures a basket of goods and services as well as energy and food costs, jumped a whopping 5.4 percent in June from a year earlier, the fastest pace in almost 13 years.

In his testimony before lawmakers Wednesday, Powell stressed that much of the recent price pressure is coming from just a few industries that have reason to see temporary price increases. 

Some of those industries include used cars, which surged more than 10 percent from 12 months ago due to a semiconductor shortage, and airline fees, which rose 2.7 percent, as they saw demand rebound last month.

Multiple members of the House committee pressed him on the current inflation trends.

“It’s all kind of the same story. It’s a shortage of semiconductors. There’s also very high demand for various reasons,” Powell said in response to a question from Rep. Madeleine Dean, R-Pa. “It’s just a perfect storm of high demand and low supply and it should pass. Unless we think there’s gonna be a multi-year, many-year shortage of used cars in the United States, we should look at this as temporary. We very much think that it is.”

Powell also emphasized that it’s important the Fed not react to inflation if it is in fact temporary because overreacting could cause other economic consequences. 

“You wouldn’t react to something that is likely to go away,” he said.

“The incoming inflation data have been higher than expected and hoped for, but they’re actually still consistent with what we’ve been talking about,” he added, with inflation coming from a “small group of goods and services that are directly tied to the reopening of the economy.”

But other price hikes, such as housing, which rose 2.6 percent from a year ago, could be signs that the inflationary prices are creeping into parts of the economy where rising costs might not be able to reverse.

And a separate inflation measure released Wednesday, the Producer Price Index, which tracks the wholesale prices of goods and services, bolstered inflation concerns. It increased a record 7.3 percent in June from a year earlier, higher than expected.

That has some on Wall Street concerned that inflation isn’t going anywhere.

“I worry about inflation. I do not believe inflation is going to be transitory,” BlackRock CEO Larry Fink told CNBC on Wednesday. Instead, he said, “It’s going to be more systematic over time.”

“How the Federal Reserve and how other central banks navigate that is going to be very important,” he added.

Jamie Dimon, CEO of JPMorgan Chase, questioned the Fed’s take on inflation, too.

“Inflation could be worse than people think. I think it’ll be a little bit worse than what the Fed thinks. I don’t think it’s only temporary,” he said on the bank’s post-earnings conference call with investors Tuesday.

Goldman Sachs CEO David Solomon added that there’s “no question” inflation has ticked up.

And Steven Mnuchin, who served as Treasury secretary under former President Donald Trump, on Wednesday didn’t mince words.

“I respectfully disagree with him on his not being concerned,” Mnuchin told CNBC, speaking about Powell and inflation. “It’s important for the Fed to get ahead of the curve so that we don’t end up with 4 percent or 5 percent interest rates … the Fed has to normalize.”

Various consumer goods companies have also told investors recently that they see some further price hikes coming in the next few months.

Hugh Johnston, PepsiCo’s CFO, said Tuesday that the food and beverage giant will likely raise prices soon.

“Is there somewhat more inflationary pressures out there? There is,” he said. “Are we going to be pricing to deal with it? We certainly are.”