Fed Chairman Jerome Powell warns inflation could last months longer than expected causing another political headache for Joe Biden
Federal Reserve Chair Jerome Powell says inflation is likely to remain high in the coming months, spelling more bad news for President Biden.
Powell made the prediction during a Senate Banking Affairs Committee hearing on Tuesday, where he blamed the reopening of the economy for the increased price of goods and services.
'Inflation is elevated and will likely remain so in coming months before moderating,' he warned.
'As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors. These effects have been larger and longer-lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal.'
The Dow dropped more than 600 points after the remarks and then recovered slightly in the afternoon. However, it still closed the day down 569 points, or 1.6 percent.
Powell's prediction is likely to cause ongoing headaches for Biden, who is presiding over the highest levels of inflation in 13 years.
Rising costs of groceries, coupled with the current border crisis and the backlash against the hurried withdrawal from Afghanistan, has caused a dramatic drop in the President's approval ratings.
Federal Reserve Chair Jerome Powell says inflation is likely to remain high in the coming months, spelling more bad news for President Biden
The remarks caused the Dow to drop more than 600 points, before it recovered slightly in the afternoon
In August, inflation was at 5.3 percent, down slightly from the 13-year high of 5.4 percent in June and July.
However, grocery store giant Kroger recently warned prices at their stores could rise by another three percent before the end of the year.
Since December, prices for beef have risen by 14 percent, pork by 12 percent, and poultry by 6.6 percent.
Kroger will be 'passing along higher cost to the customer where it makes sense to do so,' CFO Gary Millerchip said on the company's second-quarter earnings call earlier this month.
Meanwhile, the cost of public transport is up 18 percent, while airlines and hotels have also pushed up their prices.
In July, the price of used cars were up a whopping 42 percent when compared with the same month last year.
Gas was also up 42 percent, causing pain at the pump for millions of American drivers.
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, has increased by 0.5 percent from June 2021 to July 2021 before seasonal adjustment, up 5.4 percent from July 2020
Powell's comments came just before Senator Elizabeth Warren unleashed on him, saying that he weakened the US banking system by rolling back financial regulations that were enacted after the 2008 financial crisis.
Powell, who was nominated by former President Trump, will see his term expire in February. President Biden has indicated that he'd reappoint Powell, earning pushback from progressives like Warren and Rep. Alexandria Ocasio-Cortez of New York.
Warren told Powell: 'I came to Washington after the 2008 crash to make sure that nothing like that would ever happen again. Your record gives me grave concern,' the Massachusetts lawmaker said.
'Over and over, you have acted to make our banking system less safe, and that makes you a dangerous man to head up the Fed, and it's why I will oppose your re-nomination.'
In 2019, the Fed weakened rules that ensure that firms have adequate cash to meet their obligations by lowering liquidity requirements for banks. The guidelines were put in place after the 2008 crisis.
Under Powell's watch in March 2020, the Fed intervened in the US economy to mitigate repercussions from COVID-19 within financial markets, including up to $2.3 trillion in lending to support households, employers, and state and local governments.
Since his tenure began Powell has also rolled back or loosened a number of other financial crisis-era regulations in a bid to spur economic growth.
'I know that some argue that your deregulatory actions are mostly harmless. I disagree. I think they've put taxpayers at risk for hundreds of billions of dollars,' Warren said.
She said nominating him for the job again would put the US economy at risk.
'Re-nominating you means gambling that for the next five years, a Republican majority of the Federal Reserve with a Republican chair, who has regularly voted to deregulate Wall Street, won't drive this economy over a financial cliff again,' Warren said.
'And with so many qualified candidates for this job, I just don't think that's a risk worth taking.'
The White House has not yet announced a decision on whether to reappoint Powell or choose an alternative.
Warren told Powell that re-nominating him is an economic risk that isn't worth taking
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