FILE – In this Dec. 1, 2020 file photo, Federal Reserve Chair Jerome Powell listens during a Senate Banking Committee hearing on Capitol Hill in Washington. (Al Drago/The New York Times via AP, Pool)
UPDATED 9:23 PM PT – Thursday, April 8, 2021
While speaking at the International Monetary Fund and World Bank spring meeting on Thursday, Federal Reserve chair Jerome Powell said the surge in U.S. spending as the economy reopens paired with limited supply is forecast to drive prices higher this year.
“And now we have a situation where the economy is reopening…there will be bottlenecks, perhaps, but it seems unlikely that that will change the underlying inflation psychology that has taken deep roots over the course of many, many years,” he stated. “So that’s what we think…we think that there will be upward pressure on prices, which may be passed along to consumers in the form of price increases.”
Officials added that inflation is projected to be at 2.5 percent by 2022, which is higher than the Fed’s 2 percent target. The projections came after Joe Biden’s $1.9 trillion American Rescue Plan was criticized by GOP lawmakers for the damage it would do to the economy by raising prices and increasing the probability of inflation.
“We’re doing damage to the future of this country by spending dramatically more money than we obviously need at this particular point at which time the economy is coming back,” stated Sen. Mitch McConnell (R-Ky.). “We’re on the way out of this…we’re about to have a boom and if we do have a boom, it will have absolutely nothing to with this $1.9 trillion.”
The IMF’s Steering Committee added that the global recovery from the pandemic is faster than expected, but they warned a spike in interest rates would be painful for emerging economies.
Additionally, the Biden administration seeks to pass a new bill, which would allocate $2 trillion to infrastructure. The Treasury Department released a plan for an overhaul of the corporate tax structure, which would raise more than $2 trillion over 15 years in order to fund Biden’s plan.
Republican lawmakers are pushing back against the bill, which they believe has the potential to be detrimental to U.S. corporations.