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Yellen says stimulus only 'small contributor' to inflation, Powell sees Fed ready to adapt policy to higher price pressures

Kitco News

(Kitco News) U.S. Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell were grilled on inflation by the U.S. lawmakers during their second day of testimonies before the U.S. Congress.

The questions poured in after Powell retired the phrase that "inflation is transitory." U.S. lawmakers dove in trying to identify some of the main causes behind this problematic inflation.

When asked if U.S. President Joe Biden's $1.9 trillion American Rescue Plan stimulus package was the reason behind higher-than-expected inflation, Yellen replied that it was only a small contributor.

Yellen did note that the stimulus increased demand and consumer spending.

"It's certainly true that the American Rescue Plan put money in people's pockets ... and contributed to strong demand in the U.S. economy, but if you look at the amount of inflation that we have, and its causes, that is at most a small contributor," Yellen told the House Financial Services Committee.

In the meantime, Powell once again confirmed that the Fed would be discussing accelerating the tapering of its asset purchases at the upcoming December meeting, with plans to wrap up a few months earlier.

The Fed Chair added that tapering "need not be a disruptive event for the markets."

He also pointed out that the Fed policy stands ready to adapt to higher inflation.

"[Inflation] has spread more broadly in the economy, and the risk of persistently higher inflation has clearly risen, and our policy will continue to adapt to that. We've seen factors causing higher inflation to be more persistent … Inflation is expected to move down in the second half of next year," Powell said.

Gold price sheds gains as Powell talks more aggressive tapering, wants to drop 'inflation is transitory' term

When explaining why he finally chose to retire the phrase "transitory inflation, Powell stated that "when you have a word that means different things to different people, we need to find a better way to explain things."

After dropping around $40 the day before, gold was able to hold onto its early-morning gains during Wednesday's testimonies. December Comex gold futures were last trading at $1,784.20, up 0.60% on the day, amid some safe-haven demand for the precious metals triggered by uncertainty in the marketplace

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