The economy has shown sustained improvement due to widespread vaccination and unprecedented monetary and fiscal policy actions, Fed Chair Powell said in prepared testimony before the House regarding the Fed’s response to the coronavirus pandemic. However, inflation has increased notably in recent months reflecting low base effects, the pass-through of past increases in oil prices to consumer energy prices; the rebound in spending as the economy continues to reopen; and the exacerbating factor of supply bottlenecks, which have limited how quickly production in some sectors can respond in the near term. As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal. Investors will not turn their attention to the hearing for further clues on the tapering timeline. The Fed left the target range for its federal funds rate unchanged at 0-0.25% in June 2021 but policymakers signalled they expect two increases by the end of 2023.
