Fed Chair Powell Says Inflation Likely Temporary, Will Keep Interest Rates Low For Now

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Federal Reserve Chair Jerome Powell gave his insights during a speech today at the Jackson Hole Economic Symposium as to where interest rates are going and what’s driving the current state of inflation.

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Powell’s address largely focused on inflation as a “cause of concern” but maintained the Fed’s overall stance that inflationary pressures have been a result of the ongoing economic recovery in his virtual remarks during the annual symposium. He added that the last month “brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant,” echoing enduring Wall Street fears of the new strain hampering full economic liftoff.

He also noted the Fed “will be carefully assessing incoming data and the evolving risks.”

As for inflation, Powell stated that higher prices are not reflected across the board. Outliers, like the current price surges for cars both new and used, would soon pull inflation back down. A global chip shortage in addition to supply chain disruptions, whose ongoing issues he noted, have contributed to a surge in the price for used and new vehicles.

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He acknowledged the above-target rates of inflation but added that the concern is “tempered by a number of factors that suggest that these elevated readings are likely to prove temporary.”

In regards to rate hikes, Powell has said in the past that a dual mandate of near or full employment in addition to an above-target 2% inflation rate would be necessary before the Fed considered raising interest rates. He said that although inflation is solidly around the 2% target rate “we have much ground to cover to reach maximum employment” indicating more improvement is needed in the employment figure before rate hikes happen.

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Although the jobs report has been improving over the last couple of months, the overall unemployment rate is still relatively high. The Fed has sustained near-zero interest rates and asset purchases to keep borrowing cheap and aid the economic recovery needed to bring the figure to a stable level, but looming Delta variant fears have the potential to pull employment back down.

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Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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