The Daily Update: 70s Inflation 'Very Very Unlikely'

At yesterday’s House Select Subcommittee on the Coronavirus Crisis, a more dovish Jerome Powell acknowledged that some of the inflation pressures seen of late are both stronger and more stubborn than first thought, however, was confident they are nowhere what the US has seen historically. Among the factors pushing prices higher, hotel prices, lumber, airlines tickets added to pent up consumer spending he believed would resolve themselves in the ‘coming months’. He maintained that the Fed ‘Will not raise interest rates pre-emptively because we fear the possible onset of inflation’ and that they will wait for ‘evidence of actual inflation or other imbalances’.

‘I will say that these effects have been larger than we expected, and they may turn out to be more persistent than we have expected’ he told the committee, adding ‘But the incoming data are very consistent with the view that these are factors that will wane over time, and inflation will then move down toward our goals, and we’ll be monitoring that carefully’.

Powell was asked whether the US was headed towards the hyperinflation of the late ’70s and early ’80s by Republicans on the committee. ‘Very, very unlikely’ was the reply. ‘You have a central bank that’s committed to price stability and has defined what price stability is and is strongly prepared to use its tools to keep us around 2% inflation’ he said ‘All of these things suggest to me that an episode like what we saw in the 1970s … I don’t expect anything like that to happen’.