Federal Reserve press conference, 2021-07-28 — Chair Jerome Powell

Question (James Politi, Financial Times): Thank you very much. Chair Powell, how would you describe the risks to the outlook on inflation at the moment after the last data came out higher than expected? Do you believe the risks are, you know, tilted to the upside? And does the Committee share that view? Or are they in balance? Are you still worried that there could be a hit to demand from, from the Delta variant that could tilt them sort of to the downside again? If you could give us a sense of that, that would be very helpful.
Answer: Sure. I’d be glad to. So if you look, again, if you look at the, the most recent inflation report, what you see is that it came in significantly higher than expected. But essentially all of the overshoot can be tied to a handful of categories. It isn’t the kind of inflation that’s spread broadly across the economy. It’s new, used, and rental cars. It’s airplane tickets. It’s hotels. And it’s a couple of other things. And each of those has a story attached to it that is—that is really about the reopening of the economy. So we look at that, and we think that those are temporary things because the, the supply side will respond. The economy will adapt. We have a very adaptive, adaptable, flexible economy and labor market. And it’s a real—a real asset that we have. And so we think that inflation should move down over time. Now, we don’t have any—much confidence, let’s say, in the timing of that or the size of the effects in the near term. I would say, in the near term, that the, the, the risks to inflation are probably to the upside. I, I, I have some confidence in the—in the medium term, that inflation will move back down. Again, it’s hard to say when that will be. I, I, I will say, though, that, you know, we—inflation is half of our mandate. Price stability is half of our mandate. And if we were to see inflation moving up to levels persistently that were—that were above, significantly, materially above our goal and particularly if inflation expectations were to move up, we would use our tools to guide inflation back down to 2 percent. So we won’t have an extended period of, of high inflation. We think that, that some of it will, will fall away naturally as the process of reopening the economy moves through. And it could take some time. In any case, we will use our tools over time as appropriate to make sure that we do have inflation that averages 2 percent over time.