Federal Reserve Chair Jerome Powell said the U.S. economic recovery still hasn’t progressed enough to begin scaling back the central bank’s massive monthly asset purchases, while adding that inflation is likely to remain high in coming months before moderating.
“At our June meeting, the committee discussed the economy’s progress toward our goals since we adopted our asset purchase guidance last December,” Powell said Wednesday in remarks prepared for delivery before the House Financial Services Committee. “While reaching the standard of ‘substantial further progress’ is still a ways off, participants expect that progress will continue.”
The hearing to present the Fed’s semi-annual Monetary Policy Report to Congress is scheduled to begin at 12 p.m. Washington time. Powell addresses the Senate banking panel on Thursday.
U.S. central bankers are providing aggressive support by holding interest rates near zero and buying $120 billion of bonds a month, even as the economy shows strong growth. Job gains have been solid and inflation has jumped, though officials say that’s due to temporary supply glitches as the economy reopens from the pandemic.
Ten-year Treasuries held earlier gains with yields around 1.37% following the release of Powell’s remarks. U.S. stock futures were higher and the dollar softened.
Critics say that ultra-easy monetary policy alongside massive government spending is overheating the economy. Government data released on Tuesday showed prices paid by U.S. consumers surged in June by the most since 2008 and were up 5.4% from the same month last year.
“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,” Powell said. “Prices for services that were hard hit by the pandemic have also jumped in recent months as demand for these services has surged with the reopening of the economy.”
Powell noted that asset prices and risk appetite have risen while downplaying any near-term risks to the economy from financial markets.
“Household balance sheets are, on average, quite strong, business leverage has been declining from high levels, and the institutions at the core of the financial system remain resilient,” he said.
Powell’s remarks before Congress this week are his last semi-annual testimony before President Joe Biden decides whether to give him another four years at the Fed helm or pick someone else. Powell’s tenure as chair expires in February.