The new $1.9-trillion stimulus Congress has pumped into the U.S. economy is unlikely to spark prolonged inflation, Jerome Powell, chair of the U.S. Federal Reserve, told the House Financial Services Committee in testimony on 23 March.
If inflation does pose a problem, the Fed has the tools it needs to control it, Powell added.
“We might see some upward pressure on prices,” he acknowledged. “Our best view is that the effect on inflation will be neither particularly large nor persistent,” he said.
Some economists have warned that the stimulus, which includes a $1,400 stipend for most U.S. adults, will coincide with a rebounding economy and set prices on a runaway course.
Yields on treasury securities have more than doubled in recent months as investors expect prices to rise with the economy’s returning strength.
Powell also repeated his past comments that the economy is improving as a result of the successful vaccination campaign coupled with continued safety measures such as masking and social distancing.
Any recovery, however, is far from complete, he cautioned.
TREND FORECAST: As we have noted in the U.S. Markets Overview, inflation will rise, the value of the dollar will decline, and it will cost more to service the nation’s $28 trillion debt load.
Indeed, by the words of Powell, it is a complete act of irresponsibility for anyone to recommend that someone – business, individual, or government – go extremely deep in debt by borrowing massive amounts of money on the hopes of recovering lost market share, bad investments, etc. Yet, there is no criticism of these statements from the Fed that are anathema to sound economic policy.
