Federal Reserve Chair Jerome Powell on Tuesday said supply side constraints in the U.S. are not seeing “a lot of progress,” which he said is one factor driving the high rate of inflation.
Powell, during his confirmation hearing before the Senate Banking Committee, said the central bank had first said inflation in the U.S. would be transitory because officials believed supply side bottlenecks and shortages would be alleviated at a quicker pace, which has not been the case.
“We haven’t had this kind of a labor force shock before so we and essentially all other mainstream forecasters forecasted that by now we’d be seeing much lower inflation, and that’s not what happened,” Powell said.
“So what’s changed is that, just as I mentioned, the supply side constraints have been very persistent and very durable. We’re not seeing, really, a lot of progress,” he added.
The central bank chair pointed to the number of ships at anchor at ports in Long Beach and Los Angeles in California, noting that they are “still at a record level.”
“So we’re not really seeing yet the kind of progress we, essentially all forecasters really thought we’d be seeing by now and that’s really what’s driving it,” he added.
Powell also said that while the central bank did foresee a strong spike in demand, it did not predict that it would be heavily focused on goods.
He added later in the hearing that officials thought that there would have been a “much more significant return to the workforce” at the end of last year than there was, which could pose more issues for inflation down the road.
“We also thought, you know, by the end of last year, we also thought that there would be a much more significant return to the workforce than has turned out to be the case. And while that’s not what’s causing current inflation, it is more the demand, kind of demand side issue that — labor supply can be an issue going forward for inflation, probably more than these supply side issues, these supply chain issues that we’re seeing,” he said.
Powell’s comments come as many Americans remain concerned about rising inflation in the U.S. The consumer price index, a key gauge of inflation, grew 6.8 percent in the year leading into November, which was the highest rate the U.S. has seen since 1982.
In November alone, inflation increased prices by 0.8 percent.
The rising inflation reflects a surge in prices nationwide, which has put pressure on Americans who now have to spend more money for various goods.
Powell on Tuesday said inflation poses a “severe threat” to achieving maximum employment in the U.S., and said the central bank will raise interest rates if inflation stays elevated for a longer period than expected.
“If we see inflation persisting at high levels longer than expected, then we will, you know, then we’ll, if we have to raise interest rates more over time we will,” Powell said. “We will use our tools to get inflation back.”
In his opening statement, the Fed chair pledged that the Fed will prevent inflation from becoming “entrenched” in the U.S.