Federal Reserve Chair Jerome Powell appeared before Congress on Tuesday and delivered testimony focused on the damage to the American economy caused by high inflation and frankly addressed how the impact hits those hardest who are most pressed to pay for food, shelter, and transportation.
Powell said that the U.S. economy is healthy enough to tighten monetary policy despite the threat of continuing inflation. He expects the Fed to implement a series of interest rate hikes through 2022 and reduce other fiscal stimulus measures.
Powell described the coming moves as “normalizing policies” and said that the Fed would end its asset purchases in March and will start allowing its balance sheet to “run-off” as the year progresses.
The Fed insisted that inflation was “transitory” for virtually all of 2021. Still, it pivoted on that position and now is expected to combat long-term inflation with interest rate bumps in quarter-percentage-point increments. Higher rates are expected to control inflation by slowing the flow of money into the economy, surging with trillions of new dollars coming from Congress. The Fed intended to combat the effects of the COVID-19 pandemic.
Powell said that interest rate increases would come as the economy has the strength to handle them. He cited the last federal jobs report showing an unemployment rate of 3.9 percent in December.
Consumer price inflation has hammered Americans through the last year. A press release issued by the U.S. Bureau of Labor Statistics in December provided that the price index rose 6.8 percent for the 12 month period that ended last November. That marked the most significant 12-month increase since the 12 months that ended in June 1982.
Powell was first nominated as Fed chair by President Donald Trump in 2017. He was confirmed by the Senate in 2018 and has since been appointed by Joe Biden for a second term.
Stock markets finished up across the board on Tuesday following Powell’s testimony, with the NASDAQ index closing up 1.41 percent on the day.