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High inflation readings will subside next year, Fed chairman says.

Fed Chairman Jerome Powell on Monday showed no sign he was interested in taking his foot off the gas that is propelling the U.S. economy forward.

"We at the Fed will do everything we can to support the economy for as long as it takes to complete the recovery," Powell said, in testimony prepared for delivery on Tuesday to the House Select Subcommittee on the Coronavirus Crisis. The hearing is set for 2 p.m. on Tuesday.

In the prepared remarks, made available early by the subcommittee and the Fed, Powell said the economy has shown considerable improvement.

The economy is on pace to grow at a 7% rate this year, the fastest increase since the early 1980s.

But Powell said labor market conditions "remain uneven," and that the unemployment rate "understates the shortfall in employment" over the past year.

The Fed is buying $120 billion per month of Treasurys and mortgage-backed securities, along with keeping its benchmark policy rate close to zero, in order to support the economy.

Some Fed officials are calling for the central bank to start to slow down, or taper, the purchases. Last week, Powell said the central bank would start to discuss the modalities of slowing down the purchases, but he didn't mention any taper in his prepared remarks.

The Fed chairman said he thought that high inflation readings in the past few months were caused by "transitory supply effects."

Once these abate, "inflation is expected to drop back toward our longer-run goal," he said.

Two regional Fed bank presidents warned on Monday that high inflation could persist into next year and that the central bank had to begin to plan to ease off its ultra-easy policy stance.

In contrast, New York Fed President John Williams, a close ally of the Fed chairman, told reporters that he thought a decision to slow down bond purchases was "quite a ways off."

Billionaire investor Ray Dalio said the Fed can't tighten without having a big negative effect on markets.

Stocks jumped on Monday as investors shook off concern that the central bank was poised to at least start the process of taking the punchbowl away from the party.

The Dow Jones Industrial Average closed up 598.89 points to 33,876.97 on Monday. The yield on the 10-year Treasury note hasn't budged much since the Fed meeting last week and remained under 1.5%.