Senate Banking Committee Chairman Sherrod Brown, D-Ohio, recently expressed his confidence in President Joe Biden’s economics team while criticizing Federal Reserve Chair Jerome Powell for his earlier guidance on inflation.
In a Fox Business interview last week, Brown said Powell gave the president bad advice and was the first to say high inflation was transitory.
"He's the one that said it's transitory and others followed his advice," Brown said, before noting that Powell was appointed to his position by former President Donald Trump.
Powell joined the Federal Reserve board in 2012 by appointment of former President Barack Obama. Later, Trump appointed Powell to his first term as Fed Chair in 2018. Biden later appointed Powell to his second term in May, which will expire in 2026. Earlier this year, Brown supported Powell’s second term nomination.
"He's been a steadfast defender of the Federal Reserve’s independence, resisting unprecedented attacks by former President Trump to politicize the Fed," Brown said at the time on the floor. "He played an instrumental role in stabilizing our economy in the face of the coronavirus pandemic. He's been a reliable voice and a steady hand through this crisis."
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Economists claimed inflation was transitory
In 2021, inflation began increasing. At the time, Powell said the higher-than-usual numbers were transitory, created by temporary economic circumstances following the pandemic, and that inflation would begin to fall back down on its own.
However, in November last year, Powell changed his forecast and said he expected high inflation to continue into the middle of 2022. He said the government should stop using the word "transitory" when referring to inflation.
"So I think the word transitory has different meanings to different people," Powell said in a hearing before the Senate Banking Committee. "To many, it carries a time, a sense of short-lived. We tend to use it to mean that it won't leave a permanent mark in the form of higher inflation. I think it's probably a good time to retire that word and try to explain more clearly what we mean."
Inflation surged in June to a new 40-year high. The Consumer Price Index (CPI) increased by 9.1% annually, hitting its highest point since November 1981, according to the Bureau of Labor Statistics (BLS). This marked the fifth time it's broken that record this year. The only exception was in April, when it eased slightly.
While Powell at one point did say inflation would likely be transitory, he was not alone. Treasury Secretary and former Federal Reserve Chair Janet Yellen also said inflation risks were "small and manageable," that the Biden administration could handle it and that it would be transitory. But in June, Yellen said that she was wrong about the path inflation would take.
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Fed likely to raise rates as inflation increases
The Federal Reserve continues to make moves to combat inflation, such as by raising the federal funds rate so interest rates will rise and help slow the economy.
Following the Federal Open Market Committee (FOMC) meeting earlier this week, the Fed announced another 75-basis point rate hike, bringing the target range to 2.25% to 2.5%.
Prior to this in June, the Fed also raised rates by 75 basis points, the highest increase since 1994. So far this year, the central bank has raised rates four times.
"The Fed has communicated its desire to restore price stability and a willingness to accept at least some pain in labor markets in the process," Bank of America said of the Fed in its recent economic forecast.
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