The pandemic-related shortages pushing consumer prices higher are poised to last longer than economists and policymakers expected. Jerome H. Powell, the Federal Reserve chair, said the central bank is positioning itself to react if it does not. The same is true for upward pressure on wages, he said. The “most likely case’ is still that inflation will move back down toward the central bank’s goal of 2 percent, Mr. Powell said. But he signaled that the Fed was closely watching consumer and business expectations to ensure that people did not begin to anticipate persistently higher prices. Until recently, signals from the bond market indicated little worry among investors that price gains from the reopening of the economy would turn into structural inflation. But there are signs that bond investors are beginning to worry that the long-lasting nature of the supply shocks could lead to price gains that last. The pace of price gains that investors expect is still nowhere near as high as it was in the 1970s. On Friday, one measure of the bond market’s expectations for average annual inflation over the next five years, known as a “breakeven,’ rose to a record high. The central bank tries to foster maximum employment and price stability by lowering rates in times of trouble and raising them when the economy needs to be cooled down. Inflation has jumped because consumer demand has surged while production lines and available workers have struggled to keep pace. Continued waves of coronavirus outbreaks have kept many would-be employees on the sidelines.
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