Chairman of the federal reserve Jerome Powell admitted in a hearing Thursday that “with the benefit of hindsight” the Fed clearly underestimated inflation.
Powell made the comments in response to a line of questioning by Republican Missouri Rep. Ann Wagner.
“I’m just surprised we weren’t moving more quickly at the Fed,” Wagner said, “I wanna be honest, sir, the Fed I think underestimated actual inflation. What do you think you missed?” (RELATED: Jean-Pierre Downplays Fears Of A Possible Recession)
“Well we did underestimate it,” Powell said, “With the benefit of hindsight clearly we did.”
Fed chair Powell to Hse Cmte on inflation: We did underestimate with the benefit of hindsight. Clearly we did…We had to decide whether that was going to be a lasting thing or whether it would kind of turn around quickly
— Chad Pergram (@ChadPergram) June 23, 2022
“It comes down to this judgement that we had to make,” Powell continued. “It has really nothing to do with our framework or anything like that. Every central bank had to make the same judgement which was looking at the supply chain problems and the shock to labor force participation — millions of people out of the labor force — we had to decide whether that was gonna be a lasting thing or whether it would turn around quickly.”
Powell told Wagner the Fed thought the recovery from the pandemic would occur quicker than it did.
“The thought was people would come back as soon as COVID is over. We have these new vaccines, every American is gonna get vaccinated. We’ll be done with COVID by the end of the year.”
U.S. Treasury Secretary Janet Yellen denied the possibility of a recession in early June. Yellen had dismissed inflation concerns earlier but admitted she was wrong in a May 31 interview with CNN’s Wolf Blitzer. “I think I was wrong then about the path that inflation would take,” Yellen said.
The Consumer Price Index has reached its highest rate in 40 years. Energy prices increased by 34.6% in the last year, and gas prices are up 48.7%.