Powell says US inflation may rise in 2021, but will not stay

WASHINGTON — Federal Reserve Chair Jerome Powell on Tuesday acknowledged that the United States will see inflation rise this year, but the uptick in prices will not be substantial.

Stock markets and some economists have grown nervous in recent weeks that the US economy's expected recovery this year as the COVID-19 pandemic recedes coupled with trillions of dollars in government stimulus could push prices upwards.

Speaking to the House Financial Services committee, Powell acknowledged that scenario could indeed play out, but the price increase would likely be temporary.

"We do expect that inflation will move up over the course of this year," said the central bank chief, noting that this would be partly due to major economic sectors recovering from the deep slumps of March and April 2020, when business restrictions to stop COVID-19 were at their most intense.

"Our best view is that these effects on inflation will be neither particularly large nor persistent."

The Fed slashed its benchmark lending rate to zero last March as the pandemic began, and later in 2020 unveiled a new inflation targeting policy that will keep rates low until inflation hits 2 per cent and stays there, in a bid to maximise employment.

The bottomed-out rates are viewed as one of the reasons for the boom on Wall Street over the past months, and markets have grown nervous that an uptick in inflation could cause the Fed to raise rates sooner than expected.

Also fueling the concerns are a series of relief packages approved by Congress to support the economy through the downturn, the latest of which is a $900 billion measure passed in December, and a $1.9 trillion bill approved this month.