Fed Chairman Powell Says Higher than Expected Inflation Presents a "Challenge"

 

In comments to the US Senate, Federal Reserve Chairman Jerome Powell admitted inflation is running higher than they expected and that how to react to that is a "challenge". His comments are reported in this article on Kitco. Below is a couple of excerpts from the article and then a bullet point list of his key comments.

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"We don't have another example of the last time we reopened a $20-trillion economy with lots of fiscal and monetary support," Powell said. "The challenge we are confronting is how to react to this inflation, which is larger than we expected. To the extent it is temporary, it wouldn't be appropriate to react to it. But to the extent it gets longer and longer, we" have to continue to revaluate the risks that would affect inflation expectations, and that is what we are monitoring."

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Debt was another issue discussed during the testimony, with Powell highlighting that the U.S. is not on a sustainable path.

"Debt is growing substantially faster than the economy. In the long run, that is not sustainable. The laws of gravity have not been repealed. We'll need to get back on the sustainable path at some point. The time to do that is when the economy is strong — unemployment is low, taxes are rolling in. That is the time to do it."

• Inflation is way above the Fed's 2% target - they are "not comfortable" with that
• Current inflation problem is "unique" in history recovering from a pandemic shutdown
• Higher Inflation expectations can lead to higher actual inflation
• Fed will discuss reducing QE if high inflation persists
• Fed will use its tools to fight inflation if necessary
• The laws of gravity have not been repealed
• US debt is growing faster than the economy which is "not sustainable"
• Fed will continue to study a central bank digital currency - not sure if it is needed
• Cyber risks of ransomware attacks is what Powell worries about the most

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My added comments: All of this is why people turn to precious metals as a form of insurance against a potential day in the future where the system really is "unsustainable" as Chairman Powell describes it in these comments. It's perfectly reasonable to question how the Fed will handle this situation where continuing easy money policies risks inflation getting out of control, but changing easy money policies to combat that risks rising interest rates putting even more pressure on a US debt situation Chairman Powell just stated is unsustainable. He clearly outlined the risks that are present no matter what the Fed tries to do going forward and noted that "the laws of gravity have not been repealed".