Why Jerome Powell Expects 'Temporary Swings In Inflation'

While supply bottlenecks spurred by the pandemic, coupled with heightened demand, are creating inflation for durable goods, aggregate personal incomes are rising and employment gains are recovering “faster than expected,” Federal Reserve Chairman Jerome Powell said Friday. 

What Happened: Folks have been eagerly awaiting what Powell might say about the Fed’s $120-billion-per-month bond purchasing program.

Many are wondering whether the central bank will allow inflation to continue to rise in the short-term while anticipating a cool-off in the long term. 

The Fed Chair said he anticipates “temporary swings in inflation” due to supply constraints affecting a narrow set of durable goods, but is not concerned with inflation more broadly until data shows it spreading to other sectors of the economy.

Powell was in Jackson Hole, Wyoming for the central bank’s annual symposium sponsored by the Federal Reserve Bank of Kansas City.

Why It Matters: Some have implicitly praised this policy — including the White House — for doing more to try to lower unemployment, while others are concerned the Fed has gone too far and inflation may spiral out of control. 

“The dynamics of inflation are complex and we assess the inflation prospect from a number of different places,” Powell said. 

At the moment, Powell said he doesn’t see evidence of a wage-price spiral, and added that businesses and households generally agree with the Fed’s policies, as they also anticipate inflation ameliorating as the pandemic recedes. 

The Context: This year, like the one before it, the Fed conference was virtual and the theme was “Macroeconomic Policy in an Uneven Economy.”

Essentially, the Fed is asking the question: what can it do to reduce inequality in a country that has become very unequal over the last four decades? (As an example, the Black unemployment rate is almost always double that of white workers, leaving the demographic group in a perpetual recession.)

Powell said unemployment from the pandemic has disproportionately hurt Black and low-wage workers, but did not return to the topic in his speech.

What Else: Central bankers, policymakers, academics and economists flock to the Jackson Hole event each year to discuss various themes. The event has occurred annually since 1978. 

Screenshot via YouTube.