July 19, 2021 — US Inflation Up Again; Fed Challenged by Senate


US inflation is moving at the fastest pace in 13 years, with last month’s CPI up 5.4 percent from a year ago, the highest monthly rise since August 2008.  The core price index was up 4.5 percent year over year.  Inflation is higher as businesses make up for the declines of 2020, supply shortages and higher shipping costs.  Rising consumer demand, the ending of business restrictions, federal pandemic dollars and a higher savings rate are also factors.  US GDP was up 6.4 percent in the first quarter, and expectations are for a 9.1 percent rise in Q2.  The Fed insists the rise in inflation is transitory and should abate once the surge in consumer demand drops off and supply shortages are satisfied.  Many economists expect higher inflation to stay through 2021, falling to 4.1 percent by December.

While speaking to the Senate Banking Committee on Thursday, Fed Chair Powell was on the hot seat.  Democrats criticized the rollback of financial protections, while Republicans were focused on inflation controls. Powell acknowledged inflation is above target, but the Fed is not ready to adjust its monthly purchases of Treasury bonds and mortgage-backed securities, nor is it expecting to change interest rates in the near term.  Powell said asset purchases will be reduced when they feel the economy has achieved “substantial further progress.”