Higher inflation will not be ‘persistent’; Fed Chair Powell doubles down on outlook

At the Debate on the Global Economy hosted by the IMF this week, Fed Chair Jerome Powell once again re-iterated that he sees a temporary spike in prices, but that inflation would not be a long-term, persistent force.

“There’s a difference between essentially a one-time increase in prices and persistent inflation. When we say inflation that’s what we mean. We mean persistent inflation that goes up by 2% or 4% or whatever it is, year after year, and that level of inflation tends to be dictated by underlying inflation dynamics in the economy, as opposed to things like bottlenecks,” Powell said.

Powell added that bottlenecks in the supply chain will be resolved, therefore, any price increase from a “temporarily tight” supply side would likely not repeat the following year.

Higher levels of inflation are not a phenomenon that advanced economies have seen over the past two decades, he added.

“We’ve had 25 years of inflation dynamics, roughly 25 years, where inflation has been low. Many economies around the world, at least for the last decade, have been unable to reach 2% inflation. Some are actually fighting off disinflation, and that has been the dominant set of dynamics about inflation for some decades,” he said. “Now, we have a situation where the economy is re-opening, there’s a surge in demand, perhaps, there will be bottlenecks, but it seems unlikely that will change the underlying inflation psychology that has taken deep roots over many, many years.”

Should the need arises, the Fed will have the tools to guide inflation back towards 2%, Powell said.

0:00 – Global growth outlook
1:53 – Persistent vs short-term inflation

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