NEW YORK: Federal Reserve chair Jerome Powell sought to reassure lawmakers and investors that the central bank can pull off the tricky task of bringing down four-decade high inflation without damaging the US economy.

In a 2½ hour congressional confirmation hearing that was notably free of rancor, Powell said the Fed was on course to begin raising interest rates from near zero and reducing its mammoth US$8.8 trillion balance sheet.

But he portrayed those steps as a move away from an ultra-expansionary emergency policy put in place to fight the pandemic, not as a shift to a restrictive stance aimed at cooling off an over-heating economy.

“We’re really just going to be moving over the course of this year to a policy that is closer to normal, but it’s a long road to normal from where we are now,” he told the Senate Banking Committee.

“It really should not have negative effects on the employment rate.”

In making his case, Powell also argued that much of the inflationary pressures the United States is experiencing will ebb on their own as supply-chain snafus and labour force shortages associated with the pandemic ease.

“He is counting a lot on the supply side coming back,” said Jim O’Sullivan, chief US macro strategist at TD Securities, which he noted is another version of saying inflation is transitory.

That’s a term that Powell retired in December after price pressures proved to be more persistent and higher than he expected.

Powell’s comments were welcomed by investors. Stocks climbed on his assurance that the Fed will tackle inflation, with the S&P 500 halting a five-day slide to close with a 0.9% gain.Fed critics such as former Treasury secretary Lawrence Summers though are likely to take little comfort from Powell’s words.

They argue that the Fed is too sanguine about the dangers of inflation and that it needs to take more forceful action than it is now contemplating to rein it in.

“There isn’t going to be a path to less inflation without a cooler labour market,” the Harvard University professor and paid Bloomberg contributor said last week.

Data out yesterday would probably show that consumer prices rose 7% in December from a year earlier, according to the median forecast of economists surveyed by Bloomberg. That would top November’s 6.8% annual rise and be the largest increase since 1982.Powell told the committee that the Fed’s focus is on fighting inflation as the United States is at or rapidly approaching what for now constitutes maximum employment.

He depicted the Fed’s coming actions to roll back its emergency stimulus as a way of ensuring that the recovery stays on track and thus allows the labor market to make even further gains over time.

 - Bloomberg