Fed’s Powell Says Inflation Is Elevated but Likely to Moderate

A surge in inflation because of supply-chain bottlenecks and other challenges related to the reopening of the economy has been larger and longer-lasting than anticipated, Mr. Powell said in his prepared remarks. “But they will abate, and as they do, inflation is expected to drop back toward” the Fed’s 2% goal, Mr. Powell said.

Mr. Powell acknowledged that there are risks that price pressures are higher than anticipated or more enduring. The Fed would raise interest rates “if sustained higher inflation were to become a serious concern,” he said.

Mr. Powell strongly indicated last week the Fed could start to reduce, or taper, its $120 billion in monthly asset purchases as soon as its next scheduled meeting and that it could complete that process by the middle of next year.

Mr. Powell is set to testify alongside Treasury Secretary Janet Yellen at Tuesday’s hearing before the Senate Banking Committee as part of quarterly hearings mandated by the March 2020 economic-relief measures that turbocharged the central bank’s emergency lending programs.

The Fed ended those programs at the start of this year, and the central bank by the end of August had sold all of the corporate bonds and related assets it purchased last year to backstop business-lending markets.

Write to Nick Timiraos at [email protected]