Home WORLD AMERICA High inflation is not temporary, admits Fed boss

High inflation is not temporary, admits Fed boss

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The time has probably come to stop using that word.Jerome Powell said in testimony before the Senate Banking Committee. Risks of more persistent inflation have increased.

Jerome Powell has hitherto used the term transient to mean that the current rise in prices seen by consumers, especially at grocery stores and gas stations, is not expected to last long.

His statement to senators shows that officials of the powerful monetary institution have started to qualify their speech, noting a more persistent price increase than expected in some sectors.

The rise in prices in the United States is at its highest in 31 years, and it accelerated in October to 5% year on year, according to the PCE index of the Commerce Department, the measure favored by the Fed.

According to Jerome Powell, the economy very strong and the high inflationary pressures could justify accelerating the pace of reduction in asset purchases by the Fed. For now, these purchases are to continue until June 2022.

The head of the American Central Bank admitted to senators that the emergence of the Omicron variant risks both accentuating inflationary pressures and weighing on employment, further complicating the Fed’s task.

For the moment, it is a risk, it has not really been taken into account in our forecasts, he agreed, arguing that the Fed will have more data on the new variant at its next meeting on December 14 and 15.

What will the Central Bank of Canada say?

Powell’s comments shine the spotlight on the Bank of Canada, which is expected to give its assessment of the current situation in the next key rate announcement on December 8.

In Canada, the inflation rate hit 4.7% in October, Statistics Canada reported two weeks ago. This was the largest year-over-year increase since February 2003.

A masked cashier in a grocery store.

The rise in the cost of living has been particularly noticeable at the grocery store in recent months.

Photo: iStock

Like the Fed, the Central Bank of Canada has been saying for months that the current rise in inflation is temporary and that the situation will be back to normal by the end of next year.

On October 27, she argued that rising inflation had been anticipated in July, but recognized thathigher energy prices and supply-side pandemic bottlenecks– now appear to be more powerful and persistent than expected “,” text “:” the main forces driving up prices – higher energy prices and pandemic bottlenecks on the side of the offer– now seem more powerful and persistent than expected “}}”>the main forces driving prices up – higher energy prices and supply-side pandemic bottlenecks – now appear to be more powerful and persistent than expected.

% at the end of 2022 “,” text “:” The Bank now expects inflation to […] be high until the next year, and that it gradually drops back to around the 2% target by the end of 2022 “}}”>The Bank now expects inflation to […] be high until the next year, and gradually decline to return to around the 2% target by the end of 2022, she indicated.

She warned all the same that she closely monitors inflation expectations and labor costs to ensure that temporary forces driving up prices do not ultimately have a lasting influence on inflation.

Unlike the Fed, however, the Central Bank of Canada has already ended its government bond buying program, which aimed to lower interest rates, arguing that the economy has already rebounded sufficiently.

The rise in the cost of living convinced Quebec Finance Minister Eric Girard to announce last week that checks of at least $ 200 were sent to 3.3 million Quebecers as of January.

Asked why he did not intend to extend this program, he specifically referred to the Central Bank of Canada’s forecast that inflation would return to normal in the second half of 2002.

It is exceptional compensation for an exceptional situation. If the Bank of Canada’s forecast does not materialize, we will have to adjust, he had launched.

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