Fed Chairman Jerome Powell said inflation is likely to rise as the economy recovers, but he thinks it will be temporary.
Federal Reserve Chairman Jerome Powell said that he expects some inflationary pressures as the U.S. economy reopens but he doesn’t believe they will be enough to spur the central bank to hike interest rates.
“We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base effects,” Powell said during a Wall Street Journal conference Thursday. “That could create some upward pressure on prices.”
Markets reacted negatively to Powell’s prediction, with stocks sliding and Treasury yields jumping.
Some analysts had been hoping he would address the recent surge in rates, with a possible indication of an adjustment to the Fed’s asset purchase program.The Fed is currently buying $120 billion a month in Treasurys and mortgage-backed securities.
Recent market chatter has centered around the central bank potentially implementing a type of “Operation Twist,” in which it sells short-term notes and buys longer-dated bonds, yet according to Fed officials, the central bank is far from any action to try to influence the long end of yields, despite expectations.