Fed Will Limit Any Overshoot Of Inflation Target, Powell Says

• The U.S. economy is going to temporarily see "a little higher" inflation this year as the recovery strengthens and supply constraints push up prices in some sectors, but the Federal Reserve is committed to limiting any overshoot, Fed Chair Jerome Powell said in an April 8 letter to Senator Rick Scott.
• "We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period," Powell said in a five-page response to a March 24 letter in which the Florida Republican raised concerns about rising inflation and the U.S. central bank's bond-buying program.
• Those modifiers - "substantially" exceeding 2% inflation or above that level for a "prolonged" period - help to more sharply define the upper bounds of the Fed's comfort zone as prices rise. "I would emphasize, though, that we are fully committed to both legs of our dual mandate - maximum employment and stable prices," Powell said.
• The Fed slashed its benchmark overnight interest rate to near zero last March after the coronavirus pandemic hit the United States, and has promised to leave borrowing costs unchanged until the economy reaches full employment, and inflation hits 2% and is on track to "moderately" exceed that level for some time.
• Fed policymakers are expected to stick with the super-easy monetary policy at a meeting next week, even as the economy strengthens and increasing COVID-19 vaccinations make a return to more normal life in the United States likely in 2021.

(Source: Reuters)