Powell also indicated that Powell did not expect any changes in the Fed's ultralow-interest-rate policies.
Powell testified before the House Financial Services Committee and reiterated his long-held belief that the recent high inflation readings have been largely driven by temporary factors. These include supply shortages, rising consumer demand, and business restrictions related to the pandemic.
Powell stated that inflation will ease once these factors are normalized. However, the Fed chair didn't repeat the assertion he made three weeks ago before another House panel that inflation would "return" to the Fed target of 2%.
The Fed stated that it would keep its benchmark short term rate near zero until maximum employment is reached and annual inflation moderately surpasses 2%. The policymakers at the central bank have stated that they are willing to accept inflation higher than its target in order to compensate for years of inflation below 2.2%.
Wednesday's statement by the Fed chair was also a reminder that "still a way off" the economic "substantial further improvements" policymakers desire before they reduce their $120 billion monthly bond purchases. These purchases are designed to lower long-term borrowing rates to encourage borrowing and spending.
Powell said that the Fed could adjust its policies if inflation or the public's expectations of inflation "move materially and persistently beyond levels consistent [with our goal]." Americans' expectations of inflation are important because they can be self-fulfilling. Consumers who expect higher prices will often demand higher wages in response. To compensate for higher wages, businesses may raise prices even further.
As part of his twice-a year monetary policy report to Congress, the chairman will testify before the House committee. He will testify before the Senate Banking Committee on Thursday.
Powell's comments coincided with a government Wednesday report that showed wholesale prices, which businesses pay, rose 7.3% in June compared to a year ago. This is the fastest 12-month gain since 2010.
In another sign of rising inflation pressures, the government stated Tuesday that prices paid by U.S. customers soared in June, the highest increase in 13 years. This was the third consecutive month of inflation rising. Core inflation, which excludes volatile food and energy costs rose 4.5% in June. This is the fastest pace since November 1991.
The reopening economy and associated supply shortages drove a large portion of the consumer price increase. About one-third of the increase was due to price increases for used cars. The prices for hotel rooms, flights, and car rental also increased significantly.
"The fact that the recent rise in inflation has been dominated in a few categories should give Fed leadership confidence that it is mostly temporary," Michael Feroli, an economist at JPMorgan Chase said this week.
However, there could be some continued increases. Restaurant prices increased by 0.7% in June, which is the largest monthly increase since 1981. They also increased 4.2% over a year ago. These price increases are likely to offset higher wages and food costs, as restaurants struggle to fill positions.
Powell's testimony was positive about the economy. He noted that hiring has been "robust", but noted that there is still "a long way to travel" with the unemployment rate at 5.9%.
Fed officials predicted that they would raise their benchmark short term rate twice at the end of 2023 during their last month meeting, a timeframe earlier than they previously indicated.