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Powell: High inflation likely to last well into next year

Yahoo Finance's Brian Cheung breaks down Powell's latest comments on inflation and tapering.

Video Transcript

- Fed Chair Jay Powell making some headlines today saying, the Fed is on track to begin tapering, with that tapering set to be completed by mid-next year. Brian Cheung is always following those comments. The Fed chair, of course, still speaking right now, but walk me through the headlines here.

BRIAN CHEUNG: Yeah, well, this is his-- really, his first appearance since that slew of economic data that we got last week, including that new print on inflation from the consumer price index. But the Fed chairman saying that effectively, it's still a go for the Fed to soon announce a tapering of its asset purchases. Again, it's been buying about $120 billion a month in US treasuries and agency mortgage backed securities.

And it appears, based off of his commentary, still happening right now, that nothing that he's seen since that point in time has really discouraged him from being able to launch that process soon again. It would not be tightening policy per se, it would just be reducing the amount of stimulus that they're putting out there right now.

So again, that could be live for the November 2nd and November 3rd policy setting meeting, where other Fed officials like the likes of Christopher Waller and Randall Quarles have also signaled that they'd be ready to begin a taper announcements.

A few other things, he did talk about inflation. He was noting that, quote, "We think the global supply chain will resume function over time." But he did say that the risk clearly now are for some of these more persistent bottlenecks to actually last a little bit longer and continue to push inflation higher. But he did say that that's not going to stop the Fed from focusing on its efforts to reduce shortfalls of maximum employment with millions still out of the labor force compared to pre-pandemic levels.

So it seems like the Federal Reserve chairman saying he still committed to keeping the easy money policy. Although, they can start to maybe take their foot off the gas pedal as soon as two weeks from now.

- Yeah, Brian, I mean, Jay Powell's got that and tapering to keep him occupied. He's also got the controversy around ethics violations potentially here from those two Fed officials that stepped down after trading. What more are we hearing in terms of how he's addressing that and how the rules might be tweaked here in making sure everything at the Fed stays above board?

BRIAN CHEUNG: Yeah, well, just yesterday, the Fed chief really laid the hammer down. He implemented what he describes as tough new rules around ethics at the Federal Reserve, especially among the Fed's most senior officials. These rules have a number of forks here. But one of them is really just prohibiting all act of trading. This would prevent any sort of individual holdings of securities, including stocks and bonds.

Effectively, what this does is it only allows diversified investment vehicles like mutual funds to be held. And if they were to be held, they'd have to give 45 days of advance notice to Fed ethics officers. And no purchases or sales will be allowed at all during heightened financial market stress. Now, Fed officials are still working out the details of what would constitute that heightened financial market stress. But they clarify that anything that looks like that market volatility of the spring in 2020 would certainly qualify.

Now, these rules will be phased in over the coming months. It'll likely require some divestitures from holdings that are being held by current existing Fed members. But, of course, we know that those two Fed officials that were very much under the microscope, that being former Boston Fed President Eric Rosengren who traded real estate investment trusts last year in addition to Dallas Fed president Robert Kaplan who made individual stock picks, both of them have since resigned in the wake of this scandal.

So we'll see if this maybe boost the odds of renomination for Jay Powell, whose term expires in February. But again, tough new rules now being instated at the Federal Reserve.

- Again, of course, Senator Elizabeth Warren has been top in terms of making sure that the attention stays on some of those ethics things that she has already called him, dangerous man. We'll see what happens there. Brian Cheung, appreciate you bringing us the latest there on Fed watch duty.