Federal Reserve Chairman Jerome Powell told lawmakers today the same thing he told them yesterday—that inflation is short term and that rapid price gains are tied to the economy’s reopening after the yearlong pandemic-fueled economic shutdown

Powell told the House Financial Services Committee yesterday that Fed officials expect inflation to begin abating in the next six months or so.

His testimony came as the Consumer Price Index (CPI) jumped to 5.4% in June, the largest increase in prices since 2008 and a far larger spike than Fed officials, the Congressional Budget Office and economists predicted.

Today, Powell tried to tamp down fears of long-term inflation as he testified before the Senate Banking Committee.

But is the erosion in the dollar’s buying power as short-lived as Powell is predicting?

Some advisors think Powell is right. “It's pretty much a no-brainer that year-over-year inflation is reflecting the economic recovery from the pandemic, which may continue for another year, but unlikely to continue long term after people have spent the savings they accumulated during the pandemic,” said Oklahoma City-based investment advisor David N. Bize.

Powell said Wednesday “the incoming inflation data have been higher than expected and hoped for,” but he said the gains were coming from a “small group” of goods and services directly tied to reopening.

He also said that it was the central bank’s goal to see “substantial further progress” before changing course, which he said was “still a ways off.”

Kathy Jones, a managing director and chief fixed-income strategist at Charles Schwab, predicted a higher-than-expected spike to the CPI but believes it will be relatively short-lived.  “Higher wages at the lower end are driving spending. But we haven’t had consumers go into the hole as fast as they have in the past. That can come back and cushion us,” she said in a Schwab webinar for advisors Tuesday.

“I think we get to a 2% to 2.5% eventually, not much higher than that,” Jones said.  

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