Fed's Powell stomps on inflation fears, pledges continued stimulus

Temporary price jumps will not spook the Federal Reserve into pulling back on the stimulus it has pumped into the US economy during the Covid-19 pandemic, the central bank's chair Jerome Powell said on Wednesday.

He highlighted the commitment of the policy-setting Federal Open Market Committee (FOMC) to keep the benchmark lending rate near zero, where it has been since the start of the crisis, and continue its massive bond buying program until employment recovers and inflation exceeds the two percent threshold "for some time."

Responding to concerns from notable economists and some investors that policymakers could let things get out of control, Powell snapped back: "We know our job."

Though he acknowledged that inflation will increase in the coming months as business ramps up, he stressed that the factors pushing it higher will dissipate.

"An episode of one-time price increases as the economy reopens is not... likely to lead to persistently higher year-over-year inflation," Powell told reporters in response to a question from AFP.

Price increases seen in recent weeks -- including a 2.6 percent year-on-year jump in consumer prices in March -- are caused largely by the bounce back from declines early in the pandemic and will go away shortly, he said.

However the resolution of supply bottlenecks is "harder to predict."

The price increases are nonetheless "not calling for a change in monetary policy, since they're temporary and expected to resolve themselves," Powell said.

The central bank is firm in its commitment to fight inflation if it appears to be permanent, and has the firepower to do so, he added.

"If we see inflation moving materially above two percent in a persistent way... then we will use our tools to guide inflation and expectations back down," Powell said. "No one should doubt that we will be prepared to use our tools."

He stressed that "a transitory raise above two percent this year would not meet this standard."

The FOMC was more upbeat about the US economy, saying in a statement at the conclusion of its two-day policy meeting that employment is showing signs of improving, but Powell noted the recovery remains "uneven and far from complete."

Even after a big jobs gain in March, the United States has 8.5 million fewer positions than in February 2020.

"Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened," the FOMC said.

"The sectors most adversely affected by the pandemic remain weak but have shown improvement," the FOMC said.

The committee again acknowledged that the pandemic is a key factor in the economic outlook, saying the "ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain."

However, that stance was less dire than in its statement last month, when the FOMC pointed to "considerable risks" to the outlook.