Jerome promises Americans that the Fed will focus on tackling inflation

This is after Powell said that if inflation gets “entrenched into the economy and people’s thinking then, inevitably, that will lead to much tighter monetary policy from us, and it could lead to a recession."

What’s happening with inflation?

• Inflation is really high worldwide, but especially in the United States.

• Just for a bit of context, 2% is the target rate of inflation. But, between a combination of supply constraints (businesses trying to make and ship things) and demand pressures (bored and locked down consumers really excited to spend after getting stimulus checks), inflation hit a three-decade high in the US in November, reaching 6.8%.

• December’s inflation numbers will be released this week, and many expect it to be, again, high.

• This is while the US central bank has been buying US$120 billion worth of bonds since mid-March last year to try and inject more cash into the economy.

• Buying these bonds increases the market’s liquidity, or cash flow, during unstable times such as the stay-at-home orders that were instituted back in March of last year.

• But now that inflation has reached such highs, the Fed officials in December said they would finish their bond-buying program sooner to reduce stimulus into the economy and expect to be hiking rates three times this year.

What did the Fed say?

• During a Senate Banking committee meeting on Tuesday while Jerome Powell, the US central bank chief, was questioned about his second term in the position, he said, “If we have to raise interest rates more over time, we will. We will use our tools to get inflation back.”

• This is after Powell said that if inflation gets “entrenched into the economy and people’s thinking then, inevitably, that will lead to much tighter monetary policy from us, and it could lead to a recession."

• He also said that both inflation and full employment are important goals for the Fed, but right now, inflation is the focus.

• “To get the kind of very strong labor market we want, with high participation, it is going to take a long expansion. To get a long expansion we are going to need price stability. And so in a way, high inflation is a severe threat to the achievement of maximum employment.”

• Powell also issued a warning about the nation’s unsustainable debt, urging the government to address it.

• “We have to address that over time. We will address it over time. And the better way to do it is soon and to do it in good times,” he said. “Start when the economy is strong and the taxes are rolling in.

You drive the stories at TMS. DM us which headline you want us to explain, or email us.