Federal Reserve chairman Jerome H. Powell said Tuesday that the central bank is focused on getting the economy back to full strength and stressed that the Fed is more ambitious and expansionary in its understanding of what this means will be.
Speaking to House lawmakers Tuesday afternoon, Powell stressed that the Fed sees maximum employment as a “broad and inclusive goal” – a standard it set when it revised its policy framework last year. That means the Fed will examine employment outcomes for different genders and ethnic groups.
“There is a growing recognition, really across the political spectrum, that we need to achieve more inclusive prosperity,” Powell said when asked, citing the lagging economic mobility in the United States. “These things hold us back as an economy and as a country.”
The Fed cannot solve problems of economic inequality on its own, he said. Congress would have a role to play in setting “a much wider range of guidelines”.
But Mr Powell’s statement on full employment came as many lawmakers wanted to talk about the second of the central bank’s two goals: stable inflation. The Fed chairman was asked repeatedly about the latest price gains in response to price pressures.
“The reopening of the economy is creating a perfect storm with very strong demand and weak supply,” Powell said, adding that most or all of the recent inflation excesses are due to short-term bottlenecks. “You do not speak in favor of a largely strained economy.”
Mr Powell added that the price hikes were bigger than expected and that the Fed was watching them closely, but he said they would still wear off over time. He also admitted that economic data was uncertain now as supply and demand emerged as businesses reopen.
“We have to be very humble about our ability to really try and get a signal from this,” said Powell.
He said he had “a degree of confidence” that strong gains would be temporary, but wasn’t sure when the shortages would resolve. Still, the categories of goods and services where costs are rising rapidly, such as restaurants and travel, are clearly linked to the pandemic.
“It shouldn’t have much of an impact on the ongoing inflation process,” he said.