Powell: Risk of persistent higher inflation has clearly risen

Yahoo Finance Live hosts Brian Cheung, Julie Hyman, and Brian Sozzi break down Fed Chair Jerome Powell's statement on inflation expectations.

Video transcript

BRIAN SOZZI: Fed Chair Jerome Powell really turning out to be quite the newsmaker today. Brian, you're flagging some comments by the chair on inflation that just hit the newswires now.

BRIAN CHEUNG: Yeah, Brian. Well, you can see the hearing taking place right there. That's Ann Wagner, the Republican from Missouri, sort of doing some questioning of both the Fed Chair Jay Powell, alongside Treasury Secretary Janet Yellen.

Some headlines that we've gotten over the past hour when this House Financial Services Committee hearing began was that, Powell said that in terms of the temporary nature of inflation, he would say that, quote, "Inflation that we're seeing is still clearly connected to pandemic-related factors."

And the treasury secretary getting flanked by some questions as well. She said that a lot of the March stimulus that came from the COVID relief bills boost the demand. But a lot of it went into goods which created a lot of the supply chain issues as opposed to services, which may not have led to as much of the bottlenecking that we did see through most of 2021.

Now Powell has also talked about the idea of wages. He says that he likes the idea of wages moving up. But doesn't say that he feels wages are turning into any sort of wage-price spiral that really triggered the hyperinflationary issue over in the 1970s.

So the Fed chairman kind of doing his hedging right now, trying to express the lawmakers that he's being vigilant on inflation but not trying to tap the brakes immediately, at least for right now. At least for right now, markets not appearing to lose their steam so far. Dow still up over 400 points, guys.

JULIE HYMAN: You know what's so interesting to me, Brian, about the inflation discussion and debate is that, for years, the Fed has been criticized by some economists and some market participants as fanning inflation. And it hadn't materialized until we got this supply shock. So now, for me, a big question is going to become, going into next year, as we have the Fed presumably going to increase rates, is it actually going to put the brakes on inflation? And will we even be able to tell if at the same time the supply chain pressures are easing? Though, I just wonder about that sort of from an academic perspective-- the Fed's leverage against inflation at this stage.

BRIAN CHEUNG: I mean, I think when it comes to the Federal Reserve-- the challenges there as you mentioned-- they would like to put the brakes on all this if it looks like demand, the underlying demand of the American consumer and the economy at large is going to possibly lead to runaway inflation, a wage-price spiral, where companies have to keep paying more and then they have to keep raising their prices and what have you.

But if the price increases are because of temporary issues like these ships being stuck outside of the Port of LA or microchip factories in Asia being shut down, then if the Fed tries to blink in response to that, they might put the brakes on a labor market recovery here in the United States that would really actually temper the recovery right there. So that would definitely be an issue that the Fed is thinking about.