Federal Reserve Chairman Jerome Powell testified before the House Select Subcommittee on the Coronavirus Crisis on Tuesday in a hearing that highlighted partisan rifts in how the U.S. should continue its economic recovery.
Powell pushed back against the growing narrative that recent increases in inflation were related to either monetary or fiscal policy. Instead he pointed to the "unprecedented" nature of the COVID-19 economic recovery, which has caused supply bottlenecks at the same time that demand has recovered sharply. He stressed that this inflation will eventually "wane."
He also noted that a handful of categories, including housing, used cars, and travel expenses such as airplane tickets and hotels, were driving the uptick.
"Those are things that we would look to, to stop going up and ultimately to start to decline as these situations resolve themselves," Powell said. "They don't speak to a broadly tight economy — the kind of thing that has led to high inflation over time."
These comments lined up with the chair's speech last week which followed the Fed's latest policy release, which suggested that interest rates could rise as early as 2023 — sooner than previous statements had suggested.
Republican Congress members did not seem to heed Powell's basic insight, peppering the chairman with questions about the need to address inflation, and invoking the hyperinflation of the 1970s as a possible precedent.
Powell again emphasized that this situation was nothing like the 1970s, or really any other economic situation in living memory.
Republicans, however, for the most part did not pinpoint the Fed's interest rate and asset-buying program for inflation — instead blaming the Democrats' fiscal policy.
Republican Whip Steve Scalise (R-La. 1st District) said President Joe Biden's economic agenda was "too much money chasing too few goods," and that measures such as extra unemployment insurance needed to be wound down.
Though Powell did not comment on specific programs, he did repeat multiple times that fiscal policy was not the Fed's "bailiwick" and stressed that much still needs to be done before a full recovery is complete.