The war in Ukraine is likely to boost inflation in the short-run, said Fed Chairman Jerome Powell on Thursday.
“We’re going to see upward pressure on inflation, at least for awhile,” from higher commodity prices, especially energy costs, Powell said during an appearance before the Senate Banking Committee.
Powell said the only question was how long that pressure would last.
One worry was that the additional upward pressure on prices could make the public come to expect inflation will continue to rise above the central bank’s 2% target. Fed research says that higher inflation expectations would make it harder for the central bank to bring inflation down.
The conflict in Ukraine is also exacerbating global supply-chain woes, Powell said, which will lead to more inflation headaches.
“It is not going to help at all with supply chains, because ships are not being offloaded,” Powell said.
Prices have risen in part because supply can’t meet the strong demand seen during the coronavirus pandemic.
In his Senate testimony, Powell repeated he will support a 25 basis point rate hike at the central bank’s next policy meeting on March 15-16 and plans a “series” of hikes this year. If inflation doesn’t peak and start to come down, the Fed is prepared to raise rates “by more than” a quarter-percentage point for one or more meetings, Powell added.