Fed Chairman Powell Warns of Sticky High Inflation and Unrealistic 2% Target

In a recent address to the public, Federal Reserve Chairman Jerome Powell warned that high inflation is likely to be “sticky” for the next couple of years. He also noted that the 2% inflation target set by the Fed is unrealistic at this time. The comments come as global markets are struggling with supply-side constraints, such as limited production capacity and shipping delays due to pandemic-related lockdowns. This has caused prices for commodities like oil and gas to skyrocket in recent months, leading to an overall increase in consumer prices. Powell noted that although short covering will soon take place, it may not be enough to counteract the current inflationary pressures in the market. Additionally, he stated that China's reopening could further drive up demand for energy, which would put even more pressure on prices. The chairman then went on to explain why a 2% inflation target is unrealistic right now. He pointed out that while it was possible before the pandemic began, current conditions make it much harder for central banks around the world to achieve this goal. He added that while higher inflation could provide some short-term relief from economic hardship caused by Covid-19, it could also lead to long-term problems if left unchecked. For example, high levels of inflation can erode purchasing power over time and cause people’s savings accounts to lose value faster than they can accumulate them. At present, Powell said there is no easy solution for dealing with high levels of inflation but urged people not to panic about rising prices just yet. He concluded his remarks by noting that “the Fed will continue its efforts towards price stability and maximum employment."