In his testimony to Congress on Wednesday, Federal Reserve Chairman Jerome Powell said that historically changes in the level of money supply have not affected inflation levels.
In response to a question from Congressman Warren Davidson about whether “M2 [money supply] rising 25% in one year “will” decrease the value of the US dollar “, replied Powell,” there was a time when monetary policy aggregates were important determinants of inflation and this has not been the case for a long time. ”
Powell added that “the correlation between different aggregates [like] M2 and inflation is very, very low, and you see that now where inflation is at 1.4% for this year. Inflation dynamics evolve over time, but do not tend to change overnight. ”
When asked about his view on inflation as a whole, Powell commented that “we expect inflation to rise so much because of the base effects … and also because we may have an increase in spending on the reopening of the economy, we do not expect it to be a persistent, long-term force, so while you can see prices go up, this is different from high and persistent inflation, which we don’t expect. If we can, we have the tools to deal with it. ”
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