As this week is coming to the end, the statements of Federal Reserve Chair Jerome Powell, who made a presentation at the Financial Services Committee of the US House of Representatives, were very important.

The upward momentum seen in the consumer price index (CPI) recently gave rise to concerns. Some members of the Federal Open Market Committee (FOMC) indicated their concerns, while others argued that the rising inflation was temporary. Although they did not specify a period for this temporary factor, the reduction of the FED's $120 billion worth of asset purchase programs came to the fore in order to prevent possible stickiness.
 

Powell’s First Presentation

In his speech in the U.S. Senate, Powell said that discussions on the future of asset purchases will be discussed at the next FOMC meeting. And he also underlined that the targets for reducing asset purchase programs are not approaching, pointing to the labor market and economic recovery. Pointing out that strong support will continue until the recovery in the US economy is completed, Powell emphasized that there is still more time to reach concrete progress.

In his first presentation, Powell also made evaluations about inflation expectations. The Chair noted that inflation is expected to remain high in the coming months along with the Fed’s target, but that inflation rates will be subdued after this process.
 

CPI and PPI are at the Highest Level of the Last 13 Years

Inflation concerns continue under the shadow of the consumer price index (CPI) and producer price index (PPI), which were announced in the last two months, reached the peak of 13 years.

The strong course in domestic demand and the rise in international food and commodity prices as a result of the ultra-loose monetary policy of the Fed and the strong support of the Congress during the pandemic period are the main determinants of inflation concerns of today. And we should also mention the positive effect of the accelerated vaccination campaign.


 

The Second Presentation

Powell mentioned about inflation rates in his statement after presentations.

Stating that the inflation rates announced for June reached the levels that he described as ‘uncomfortable’, Powell defended the supportive stance of the Fed that will continue until a full recovery is accomplished.

Powell further noted that if the inflation rate, which is the Fed's 2 percent target, is to rise above the 5 percent level, it is a shock due to the reopening of the economy. "Of course we are not satisfied with this situation", the Chairman of the Fed stated the bank follows the developments closely.