Powell speech: Risk of high inflation is a risk to getting back to full employment

Fed Chair Jerome Powell is testifying before the Committee on Banking, Housing, and Urban Affairs of the US Senate alongside US Treasury Secretary Janet Yellen.

Key takeaways:

"It is very surprising that labor force participation has moved sideways."

"A big part of the flat labor force participation rate is the pandemic."

"It will take longer to get labor force participation back."

"Risk of high inflation is a risk to getting back to full employment."

"The threat of higher inflation has grown."

"My baseline expectation is that inflation will move back down over course of next year."

"Risk of more persistent inflation has risen."

"You have seen our policy adapt and you will see it continue to adapt."

"We will use our tools to make sure higher inflation doesn't become entrenched."

"Expect high inflation to continue through to the middle of 2022."

Market Reaction

Powell comments citing high inflation as a risk to the full employment part of the Fed's dual mandate, combined with his earlier remarks that it is time to drop the word "transitory" to describe inflation, are being interpreted hawkishly. The DXY has recently crossed to the north of 96.00 as US yields recover from earlier session lows.