WASHINGTON, July 14 (Reuters) – The US labor market “is still a long way off” from the progress the Federal Reserve wants to see before reducing its support for the economy, while current high inflation will subside “in the coming years. months, ”Fed Chairman Jerome Powell said in remarks prepared for delivery during a congressional hearing Wednesday.
“Inflation has risen dramatically and will likely remain high for the next few months before moderating,” said Powell, reaffirming the US central bank’s belief that the current price increases, despite concerns they raise about inflation, are linked to the reopening of the economy and will prove to be short-lived.
Meanwhile, “there is still a long way to go” to repair a labor market that is 7.5 million jobs from its pre-pandemic level, with the burden most on low-wage workers and major ethnic and minority groups, and overall participation rates still depressed, Powell said.
Combined, the remarks show that Powell is sticking to the Fed’s basic narrative that a rapidly evolving recovery will get millions back to work if it continues, that inflation will remain anchored over time around the the Fed’s 2% target, and that there is no reason to hasten any tightening of monetary policy.
Ongoing bond purchases by the Fed and a target interest rate kept close to zero will “ensure that monetary policy will continue to provide strong support to the economy until the recovery is over,” said Powell.
Powell is scheduled to appear before the U.S. House of Representatives Financial Services Committee at 12:00 p.m. EDT (4:00 p.m. GMT). On Thursday, he will testify before the Senate Banking Committee at 9:30 a.m. EDT (1:30 p.m. GMT).
At the last Fed policy meeting, some officials indicated that the Fed may have to pull out faster than expected due to rising inflation.
Powell reaffirmed that discussions with the Fed are underway to determine when it might be appropriate to reduce the central bank’s $ 120 billion in monthly bond purchases, and that employment gains are expected to continue.
There was no mention in her testimony of the risks of the emerging Delta variant of the coronavirus, but a strong expectation that the recovery will continue unhindered.
“Job gains are expected to be significant in the coming months as public health conditions continue to improve and some of the other pandemic-related factors currently weighing them down diminish,” Powell said.
Reporting by Howard Schneider Editing by Paul Simao
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