Gold prices rose Wednesday as Fed Chair Jerome Powell continued to downplay the growing inflation threat. Yet, he said the central bank will continue to take a cautious approach to monetary policy. In remarks prepared for his testimony before the House Financial Services Committee, Powell said inflation is expected to rise through the summer but retained the idea that it will only be temporary. He also claimed that the economy needs to improve more before the central bank changes its monetary policy. He noted that the Fed’s benchmark of “substantial further progress” toward full employment and stable prices remains “a ways off.” However, he said Fed officials were talking about reducing the pace of asset purchases.
Kitco News/Neils Christensen
Gold rises as Fed’s Powell downplays inflation threat in Congressional testimony
Gold is catching a bid as Federal Reserve Chair Jerome Powell downplays the growing inflation threat and tells Congress that the central bank will continue to take a cautious approach to monetary policy.
Released ahead of his testimony before the U.S. House of Representatives Committee on Financial Services Powell said in his opening statement that while inflation is expected to rise through the summer, he continues to expect the threat will prove to be temporary.
“Inflation has increased notably and will likely remain elevated in coming months before moderating. Inflation is being temporarily boosted by base effects, as the sharp pandemic-related price declines from last spring drop out of the 12-month calculation. In addition, strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind,” he said.
Although the central bank has started talking about potentially tightening interest rates and reducing its monthly bond purchase program, Powell said that conditions to trigger a policy shift “ is still a ways off.”
Powell added that although discussion about tapering will continue through the summer, markets will be given advance notice before any changes are implemented.
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Powell says the Fed is still a ways off from altering policy, expects inflation to moderate
Federal Reserve Chairman Jerome Powell said Wednesday that the economy needs to improve more before the central bank will change its ultra-easy monetary policy.
In remarks prepared for the House Financial Services Committee, the central bank chief noted improvements but said the labor market in particular is still well below where it was before the Covid-19 pandemic hit.
Powell noted that the Fed’s benchmark of “substantial further progress” toward full employment and stable prices remains “a ways off.” He did remark that Fed officials at least are talking about reducing the pace of asset purchases.
On inflation, Powell said it “has increased notably and will likely remain elevated in coming months before moderating.”
But he stuck to his oft-stated belief that the current surge is temporary and will be offset as conditions return to normal.
Markets have been watching Fed communication for indications about when the central bank will begin tapering its minimum $120 billion a month in bond purchases as it keeps interest rates anchored near zero.
Powell noted that the two policy measures “along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete.”
The chair’s comments came as part of his mandated semiannual testimony to Congress on the state of monetary policy and the economy.
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CNN Business/Julia Horowitz
Inflation is running hot. What comes next matters most
US prices continue to march higher, triggering concerns among economists, policymakers and business leaders about the sustainability of the post-pandemic recovery.
What’s happening: The US Consumer Price Index, a key inflation gauge, jumped 0.9% in June, the largest one-month increase in 13 years. Over the past 12 months, prices were up 5.4%.
Gas prices rose 45.1% compared to a year earlier. Food prices were 2.4% higher, while prices for dining out rallied 4.2%. But even stripping out volatile food and energy prices, so-called “core CPI” rose 4.5% — the largest 12-month increase in that closely-watched measure in 30 years.
Details, details: Used car prices have skyrocketed more than 45% over the past 12 months. Meanwhile, airfare has increased almost 25% and hotel and motel prices rose 15% — though those prices are still below June 2019 levels.
This data is hugely important, since out-of-control inflation could jeopardize the health of the economy as it snaps backs following Covid-19 shutdowns. Officials at the Federal Reserve maintain that the spike in inflation is temporary, but they’re watching the situation closely in case they need to roll back crisis-era support sooner than expected.
On the radar: Divisions are deepening over whether the Fed has become too complacent.
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