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Powell: Fed is not sure what inflation will drop in 2022

In a further indication of their growing concern over inflation in USA, the president of the Federal Reserve (Fed), Jerome Powell, announced that the Fed cannot be sure that the price hike will subside in the second half of next year, as many economists hope.

Powell told the House Financial Services Commission that most economists view the current price hike – which has pushed inflation to its highest level in three decades – primarily as a response to disruptions caused by the pandemic in supply and demand.

Americans have spent more time at home, have increased their spending on furniture, appliances, laptops. Increased demand for these products, combined with a shortage of parts, has resulted in bottlenecks in the supply chain and price hikes.

Earlier, Powell has expressed his belief that these supply-demand imbalances should disappear as the pandemic subsides, thereby reducing inflation. But on Wednesday, he said that while that outcome is “likely,” it is only a forecast.

“What I am saying is that we cannot act as if we are safe,” he said. “We are not safe at all. Inflation has been more persistent and higher than we expected ”.

Speaking to the Senate Financial Services Commission on Tuesday, Powell spoke of a more rapid shift to higher interest rates than expected.

On Tuesday he said it would be “appropriate” for the central bank to consider accelerating the reduction in bond purchases at its next meeting in mid-December. That would clear the way for the Fed to raise its benchmark interest rate in the spring.

Stock prices plummeted after Powell’s comment. Low interest rates have been a key driver of the stock market records reached during the pandemic. Shares recovered most of what they lost the day before on Wednesday.

Powell also dismissed wage gains this year as something that could further increase inflation, indicating that he does not see a wage-price spiral like the one in the 1970s.

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