Fed's Powell says 'premature' to up rates despite inflation risk

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Fed's Powell says 'premature' to up rates despite inflation risk
© Al Drago Federal Reserve Chair Jerome Powell has said the US central bank is ready to act to restrain inflation, if necessary

Despite a risk that high inflation in the United States could persist, it would be “premature” to raise borrowing rates and risk slowing the economic recovery, Federal Reserve Chair Jerome Powell said Friday.

The US central bank chief acknowledged that supply constraints and shortages that have caused prices to rise sharply are “likely to last longer than previously expected, likely well into next year.” 

But at the Fed “we need to be patient,” Powell said during a panel discussion organized by South Africa’s central bank.

The Fed is “on track” to begin to pull back on its massive monthly bond purchases, which would be completed by mid-2022, he said.

But “it would be premature to actually tighten policy by raising rates now with the effect and intent of slowing job growth.”

Policymakers are expected to announce the slowdown of bond buying at the central bank’s policy meeting early next month, but the benchmark lending rate is forecast to remain at zero at least until late next year.

Inflation in the United States has been running at more than double the Fed’s two percent target, but Powell said the supply bottlenecks are likely to diminish, allowing inflation and wage pressures to retreat, which he called the “most likely case.”

However, officials “need to be watching very carefully.”

He has pledged that the Fed will act to restrain inflation, if needed.

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