According to Federal Reserve Chair Jerome Powell, present high levels of inflation are anticipated to decrease next year and will not impede the Fed from pursuing its objective of full employment.Earlier this week, Powell addressed the “tension” between the Fed’s two aims of price stability and maximum employment. In general, when unemployment is high, inflation is low, and vice versa. However, inflation has risen over the Fed’s 2 percent objective, while the jobless rate remains high, at 5.2 percent.
This can complicate the Fed’s job since, although maintaining its benchmark short-term interest rate low — it is presently at zero — might assist increase hiring, it can also enable inflation to worsen.However, in testimony before the House Financial Services Committee, Powell stated that he expects inflation would fall in the absence of increased interest rates from the Fed.
In addition, the Fed chair noted that “we are far from full employment, so that gives us with an incentive” to keep interest rates low. Lower interest rates can promote greater borrowing and spending by individuals and companies, eventually increasing hiring. Last week, Fed policymakers predicted that their first-rate rise would not occur until late next year.Powell has also indicated that if there are indicators that inflation is approaching unsustainable levels, the Fed would hike interest rates to keep it in check.