Federal Reserve Chairman Jerome Powell on Wednesday once again said that he thinks the sharp rise in inflation seen so far this year will dwindle away.

“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell said, in testimony prepared for delivery to the House Financial Services panel. The hearing with the Fed chairman will start at noon Eastern. His opening remarks have been released ahead of his testimony.

On Tuesday, the U.S. June consumer price index rose more than expected, jumping by 0.9% and the rate of inflation in the 12 months ended in June climbed to 5.4% from 5%. The last time prices rose that fast was in 2008, when oil hit a record $150 a barrel.

Powell cited three factors for higher inflation: “base effects” when weak readings of inflation last year drop out of the 12-month calculation, production bottlenecks or supply constraints have led to sharp price increases after the pandemic, and a surge in demand for services as the economy reopens.

The Fed’s forecast expects its favorite measure of inflation, the personal consumption expenditure price index, to fall from 3.4% this year to 2.1% in 2022 and 2.2% in 2023.

Some economists are worried that the Fed is being slow to react to higher inflation readings.

Former U.S. Treasury Secretary Larry Summers on Wednesday said he is even more worried than he was originally about the economy overheating.

The Fed has kept its policy interest rate near zero and is buying $120 billion per month of bonds to support the economy and keep interest rates low. Last December, the Fed said it would keep buying assets until there was “substantial” progress towards its goals of full employment and stable long-run 2% inflation.

“While reaching the standard of ‘substantial further progress’ is still a ways off, participants expect that progress will continue,” Powell said.

Minutes of the Fed’s last policy meeting in June showed the central bankers discussed when to slow down the asset purchases but no decision was reached.

“We will continue these discussions in coming meetings,” Powell told the House panel.

In his testimony, Powell said the labor market has improved “but there is still a long way to go.” Participation in the labor market has not moved up from the low rates of the pandemic, he noted.

But again, the outlook was positive,

“Job gains should be strong in coming months as public health conditions continue to improve and as some of the other pandemic-related factors currently weighing them down diminish,” Powell said.

The Fed chairman said the central bank continues to monitor the financial system for vulnerabilities like asset bubbles.

But Powell did not sound alarmed, saying that “household balance sheets are, on average, quite strong, business leverage has been declining from high levels, and the institutions at the core of the financial system remain resilient.”

U.S. stocks


were set to open slightly higher on Wednesday ahead of Powell’s testimony.

The yield on the 10-year Treasury note

remains well below the 1.75% high reached in late March.

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