Federal Reserve Chairman Jerome Powell told lawmakers today that he believed the central bank should consider pulling back emergency support for the economy more quickly than planned in the face of elevated inflation, despite growing Omicron concern.
U.S. stock market declines deepened as Powell told Senate Banking Committee members that policy makers should more quickly begin to pare back the Fed’s monthly asset purchases when the central bank meets in mid-December.
The Dow Jones Industrial Average and the S&P 500 both tumbled lower than they did on Friday, when the Omicron variant sparked a selloff that sent indexes to their biggest one-day decline of 2021.
After Powell’s comments to lawmakers, the Dow retreated 1.8%, while the S&P 500 fell 1.6%. The Nasdaq tumbled 1.7%.
Powell also warned that it is time to find a replacement for the Fed’s long-running characterization of inflationary pressures as “transitory.”
Now is “probably a good time to retire that word and explain more clearly what we mean,” Powell said. “To many, it carries a time, a sense of short-lived. We tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation.”
Powell admitted the Fed was wrong about predictions regarding how long inflation will last and said he now expects inflation to continue into the middle of 2022.
“Forecasting is not a perfect art, as you may have noticed,” Powell said.
Sen. John Kennedy (D-La.) retorted that the experts advising Powell about the future rate of inflation “have pretty much the same credibility as those late-night psychic hotlines you see on TV.”
Powell said supply chain issues, which he admitted are crippling distribution of goods countrywide, have thrown a wrench into the Fed’s projections.