With the pace of the economic recovery slowing and millions of people still unemployed, Federal Reserve Chairman Jerome Powell isn’t much focused on the threat of inflation. In fact, another stimulus package would be worth a little inflation if it got the economy going again, he said Wednesday.
“I’m much more worried about falling short of a complete recovery and losing people’s careers and lives that they built, because they don’t get back to work…and the damage that will do not just to their lives, but to the United States economy—to the productive capacity of the economy—than I am about the possibility, which exists, of higher inflation,” Powell said during a virtual press conference following a meeting of the Federal Reserve’s Federal Open Market Committee. “Frankly, we welcome somewhat higher inflation.”
Unemployment is a far bigger danger than the inflation that too much stimulus might cause, at least for the time being, Powell said, referring to President Joe Biden’s proposed $1.9 billion pandemic relief plan. The economy still has 9.8 million fewer jobs than it did before the pandemic began, and fiscal policy has been absolutely essential in supporting the unemployed, he said. The details are up to Congress.
As vaccines begin to allow the economy to re-open, there could be a burst of spending, and an increase in consumer prices. But Powell said that this would likely have a small and temporary effect on inflation, and that the Fed would “be patient” about raising rates if this happens.
Just as it has since the pandemic took hold, the FOMC recommitted to keeping benchmark interest rates near zero in an effort to keep money flowing through the tenuous economy.
“The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic,” the Fed said in a statement.