AUDIE CORNISH, HOST:
The nation's top inflation watchdog appeared before a congressional committee today and offered reassurance that the recent spike in prices is likely to be temporary. Federal Reserve Chairman Jerome Powell testified one day after a report showing inflation has reached its highest level in 13 years. Oklahoma Congressman Frank Lucas, who lived through soaring price hikes in the 1970s, told Powell he's not convinced the problem will soon go away.
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FRANK LUCAS: I'm nervous about this. How much longer can we sustain numbers like this before you become nervous?
CORNISH: NPR's Scott Horsley was monitoring that hearing this afternoon, joins us now.
Welcome back, Scott.
SCOTT HORSLEY, BYLINE: Hi, Audie.
CORNISH: So how did Powell answer that question?
HORSLEY: Jerome Powell is not nervous yet. Even though the inflation rates have come in a little higher than expected, Powell says this still fits with the basic story that the central bank has been telling. The Fed believes most of these price hikes are the result of a rapid rebound in consumer spending as fears of the pandemic fade and the challenges that a lot of businesses are having in keeping up.
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JEROME POWELL: There's a lot of demand, but on the supply side, it's just hard. They can't build enough houses. There wasn't enough lumber. The lumber prices went way up, but they - and they've gone way down. We think that'll be the pattern for - at least for some of these things, where they go very, very high, and then they come down as more supply comes online to meet the higher demand.
HORSLEY: So the Fed thinks higher inflation is a temporary problem, at least for now.
CORNISH: In the meantime, lawmakers are clearly getting an earful - right? - about higher prices from their constituents. And they passed that on directly to the Fed chairman.
HORSLEY: Yeah, they sure did. Congressman Bryan Steil of Wisconsin says he's worried that consumers might get used to these higher levels of inflation and that it might get baked into their expectations.
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BRYAN STEIL: Used cars have gone up 30%. Plane tickets have gone up 24%. Shoes are up 7%. We've seen increases in coffee and sugar, cotton, propane - all double digits. Can you comment on how the Fed responds to signs that consumers are beginning to expect more persistent inflation?
HORSLEY: Powell says this is something the Fed watches very closely because if people do come to expect prices are going to keep on climbing, that can become a self-fulfilling prophecy. You know, workers demand higher wages. Businesses then have to raise prices, and it turns into a repeating cycle, which is what we did see back in the 1970s. Powell says they're not seeing evidence of that yet, but they are on guard for it.
CORNISH: The Federal Reserve has two related goals, stable prices - that's what we've been talking about - but also maximum employment. What's happening on the employment front?
HORSLEY: Powell says the job market has improved from where it was a year ago, but it's still got a long way to go to get back to full employment. There are a record number of job openings, but not everybody who lost a job is ready to go back to work just yet. Some Republican lawmakers asked if the enhanced unemployment benefits the federal government's been offering are discouraging a return to work. That's an argument we've heard from some Republican governors. The Fed chairman said it could be a factor. Other factors, though, are the lack of child care and ongoing fears of the virus.
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POWELL: There are a bunch of factors, and it's very hard to untangle them. Unemployment insurance, for example, it may be that that enables people to look a little bit longer and try to find a better job. And in the long run, that'll be better for the economy. We're going to find out, though, because the enhanced unemployment insurance will be gone within 60 days. And in many states, it's gone already.
HORSLEY: So we could see more people going back to work this fall. That would help the businesses that are having trouble keeping up with demand, and that would help to keep a lid on prices. If not, though, the Fed may have to rethink this temporary argument.
CORNISH: That's NPR's Scott Horsley.
Thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
