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Jerome Powell Will Acknowledge Inflation’s Toll in Senate Testimony

Jerome Powell Will Acknowledge Inflation’s Toll in Senate Testimony
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Jerome H. Powell, the Federal Reserve chair President Biden nominated for a second four-year term, is set to tell senators Tuesday that central bankers will use their economic tools to keep inflation — which has been high — from becoming entrenched.

Mr. Powell, who is due to testify before the Senate Banking Committee as he seeks confirmation, faces a reset at a tense economic moment. Inflation is running at its fastest pace in nearly 40 years. While economists have been hoping for months that that will fade soon, it still hasn’t. Higher prices erode household income, even with higher wages and higher corporate employment rates.

According to his prepared remarks, Powell told lawmakers, “We know that high inflation takes a toll, especially for those least able to cover the higher costs of necessities like food, housing, and transportation.” “We are deeply committed to achieving our statutory goals of maximizing employment and price stability.”

Powell and his colleagues in recent months have redirected their policies to back away from supporting the economy in light of the inflationary explosion. They are slowing the massive bond-buying program they have been using to keep long-term borrowing cheap and to fuel the economy, and they could raise rates as soon as March.

“Monetary policy must take a broad and forward-looking view, keeping pace with an ever-evolving economy,” Powell told senators.

Economists increasingly expect Fed officials to make three or even four increases this year, eventually reducing the size of their bond holdings, policies that will make borrowing more expensive for households and businesses, take juice out of the stock market and slow overall growth.

This pivot – which puts the Fed squarely in an inflation-fighting position – could calm some lawmakers worried that the central bank will allow inflation to spiral out of control. However, some may be concerned that it took monetary policy makers so long.

Others may wonder if the central bank risks overdoing it. Removing support for the economy may slow the labor market and reduce employment, while virus concerns and childcare issues keep many former workers on the sidelines of the labor market.

Most likely Mr. Powell will also need to address the trading scandal that has rocked the Fed in recent months. Several prominent central bankers traded financial assets for their own portfolios in early 2020, when the Federal Reserve was very active in bailing out the markets.

One of them, Richard H. Clarida, Vice President, recently corrected his financial disclosures in such a way that his heated transaction — a move into stocks that occurred on the eve of a big Fed announcement — looked less like rebalancing until the Fed originally said it was more like responding to market conditions.

Mr. Clarida announced on Monday that he will resign earlier than planned by the Federal Reserve.

Mr. Powell did not directly address this development in the prepared notes, but he pledged to be fair and independent in policy choices.

“I am committed to making these decisions objectively, impartially and impartially, based on the best available evidence and in a longstanding tradition of monetary policy independence,” he adds.

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