The Federal Reserve’s future policy actions will depend heavily on movement within three key inflation sectors: commodities, housing and the broad services sector, Fed Chair Jerome Powell said Tuesday in response to a line of questioning from Senator Katie Britt, Republican of Alabama. said to
In commodities, the Fed needs already ongoing disinflation to keep up, he said.
In housing, the Fed needs a time pass, he added, noting that new, lower-priced leases are being signed soon after lagging data.
In services, “we’ll be watching it very carefully,” Powell said, adding that the sector accounts for 56% of consumer spending. Powell noted earlier in Tuesday’s testimony that services — which include a variety of industries such as financial, medical, personal care, travel and entertainment — are a driving source of today’s inflation.
Powell also noted that the Fed’s efforts to date have yet to be fully realized.
“We raised rates very quickly last year, and we know that the impact of monetary tightening is delayed; it takes some time to see the full effects,” he said.
Still, those monetary policy tools have limits, and this bout of inflation is unlike anything seen in the past, Powell cautioned.
“We have a lot of unusual factors, and I don’t think anyone knows with confidence how it’s going to play out,” he said.
