By CHRISTOPHER RUGABER
AP Economics Writer
WASHINGTON (AP) — Federal Reserve Chair Jerome Powell said Friday that the tangled supply chains and shortages that have bedeviled the U.S. economy since this summer have gotten worse and will likely keep inflation elevated well into next year.
But the Fed is not yet prepared to lift its benchmark interest rate, he said.
There is now greater risk of “longer and more persistent bottlenecks and thus to higher inflation,” Powell said at a virtual conference hosted by the South African Reserve Bank.
Powell, echoing many economists, has previously said that shortages and higher prices are mostly a result of the pandemic’s impact on supply lines, with factories in Asia temporarily closing amid COVID infections and dozens of cargo ships anchored offshore.
He said Friday that he still thinks those supply problems will be resolved over time, but the Fed will be vigilant and take steps to push inflation back down to its 2% goal if necessary.
“No one should doubt that we will use our tools to guide inflation back to 2%,” he said.
Consumer prices, according to the Fed’s preferred gauge, jumped 4.3% in August from a year earlier, the fastest such increase in three decades.
The Fed chair said he is ready to taper, or reduce, the central bank’s $120 billion in monthly bond purchases, which are intended to lower longer-term interest rates and encourage borrowing and spending.
But he added that it would be “premature” to raise the Fed’s short-term interest rate, because the job market needs more time to recover. Powell noted that there are still 5 million fewer jobs in the U.S. than before the pandemic.
“We think we can be patient and allow the recovery to take place and allow the labor market to heal,” he said.
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