Powell pledges to use Fed's arsenal to prevent entrenched inflation after renomination
Powell: High inflation takes tolls on families
Strategic Wealth Partners investment strategist Luke Lloyd and Market Gauge Group managing director Michele Schneider weigh in on Biden tapping Fed Chairman Jerome Powell for a second term.
Jerome Powell on Monday pledged to use the Federal Reserve's full arsenal to prevent faster inflation from becoming more permanent after President Biden renominated him to another four years at the helm of the U.S. central bank.
Speaking at the White House alongside Biden and Lael Brainard – the president's nominee for vice chair – Powell committed to doing "everything within my power" to uphold the Fed's dual mandates of stable prices and full employment.
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"We know that high inflation takes a toll on families, especially those less able to meet the higher cost of essentials like food housing and transportation," he said. "We'll use our tools to support economy and labor market and prevent higher inflation from becoming entrenched."
NEW YORK, NEW YORK - SEPTEMBER 21: U.S. President Joe Biden addresses the 76th Session of the U.N. General Assembly on September 21, 2021 at U.N. headquarters in New York City. ((Photo by Timothy A. Clary-Pool/Getty Images) / Getty Images)
Powell's comments come after the government reported that inflation jumped to a 31-year high in October, driven by a surge in consumer prices for everything from gasoline to meat to used cars. The inflation burst has driven fresh criticism of the White House, as well as the Federal Reserve, for the massive monetary and fiscal stimulus pumped into the economy.
Still, Powell has maintained that the price spike has been driven by "supply and demand imbalances, bottlenecks, and a burst of inflation" that were caused by the "unprecedented reopening of the economy, along with the continuing effects of the pandemic." He has previously said that as the economy opens up and supply-chain disruptions dissipate, the inflation jump will abate.
Fed officials began withdrawing support for the economy this month, announcing in early November that they would reduce the $120 billion in Treasury bond and mortgage-backed security purchases by $15 billion a month – a timeline that would conclude at the end of June. Powell has previously said the Fed will finish tapering the asset purchases before hiking interest rates from the current range of near-zero.
Jerome Powell, chairman of the U.S. Federal Reserve, speaks in the Eisenhower Executive Office Building in Washington, D.C., on Monday, Nov. 22, 2021. (Samuel Corum/Bloomberg via Getty Images / Getty Images)
While Powell has given no hint that higher inflation will prompt him or other Fed officials to raise interest rates from their rock-bottom level, following Monday's announcement, a majority of traders are pricing in at least three rate hikes beginning in June, according to the CME’s FedWatch tool. Another 32% are projecting a fourth rate hike in December.
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"The economy is experiencing an increase in inflation, and the Fed has already taken steps to reduce their extraordinary stimulus measures, but they will need to move more quickly in addressing the inflation threats so that they don’t become entrenched," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.