Fed Chair Jerome Powell says money printing doesn't lead to inflation
In his testimony with Congress on Wednesday, Federal Reserve Chairman Jerome Powell said that historically, changes in the money supply level have not affected levels in inflation.
In response to a questions posed by Congressman Warren Davidson about whether “M2 [money supply] going up by 25% in one year” is going to “diminish the value of the U.S. dollar,” Powell responded, “there was a time when monetary policy aggregates were important determinants of inflation and that has not been the case for a long time.”
Powell added that “the correlation between different aggregates [like] M2 and inflation is just very, very low, and you see that now where inflation is at 1.4% for this year. Inflation dynamics evolve over time, but they don’t tend to change overnight.”
When asked about his views on inflation as a whole, Powell commented that “we do expect inflation to move up both because of base effects…and also because we could have a surge in spending as the economy re-opens, we don’t expect that to be a persistent, longer-term force, so while you could see prices move up, that’s a different thing from persistent, high inflation, which we do not expect. If we do get it, we have the tools to deal with it.”