Fed Chairman Vows to Keep US Inflation Under Control for Those Living Paycheck-to-Paycheck

WASHINGTON (Sputnik) - The Federal Reserve on Wednesday vowed to keep inflation under check for Americans living paycheck-to-paycheck, with Chairman Jerome Powell assuring them the US central bank has the tools, including rate hikes, to subdue price pressures.

"We understand completely that it's particularly people who are living paycheck-to-paycheck that are seeing higher grocery and gas costs, and when winter comes, higher heating (bills) for their homes", Powell told reporters after chairing the Federal Reserve's policy meeting for October.

"We understand what they are going through. We will use our tools over time to make sure that doesn't become a permanent feature of life. That is one of our principal jobs, along with achieving maximum employment. That is our commitment".

The US economy shrank by 3.5% for all of 2020 due to shutdowns and other disruptions caused by the COVID-19 measures. Growth this year has been spotty, with an annualised 3.5% expansion in the first quarter, 3.6% in the second, and 2% in the third.

The Federal Reserve announced in March that it has targeted a 6.5% economic expansion for all of 2021. The problem for the central bank though is inflation as wages and the prices of almost everything have soared from the lows of the pandemic, especially pump prices of gasoline that have soared to seven-year highs.

Powell referred to the challenges posed by the Federal Reserve's dual mandate on capping inflation at 2% per year while ensuring there was "full employment" - a measure defined by a jobless rate of less than 4% among working Americans. The current rate is at 4.8%.

The United States lost more than 21 million jobs between March and April 2020, at the height of business lockdowns forced by the coronavirus. About 5 million of those jobs have yet to return due to conditions forced by the pandemic, officials say. For the vacancies that were filled, employers had to pay more wages than previously.

“The inflation we are seeing is not due to a tight labour market", Powell said. "It's due to shortages and due to very strong demand in meeting those. We have to make policy in a world where the two goals are intentional. It's difficult. What it boils down to is common sense. It's risk management".

Powell said the Fed saw no immediate need to raise US interest rates despite deciding to roll back its long-running pandemic-era stimulus of $120 billion a month for the economy.

But if the Fed decided a rate hike was the only way to cool price pressures, then it will carry out one, he said. "We will be patient, but we won't hesitate", added.

US interest rates have been held at between zero and 0.25% by the Fed since the first major outbreak of COVID-19 in March 2020.