Despite disturbing levels of inflation, Federal Reserve Chairman Colin Powell defended his position of keeping policy loose for the second day in a row.

He told the Senate Banking Committee on Thursday: "the shock to the system is related to the resumption of the economy and has made the inflation rate well over 2%, which of course we are uneasy about."

Powell called the current price rise a "unique" phenomenon in history and said the Fed was watching closely to see if its expectations of temporarily high inflation were correct and whether inflation was likely to last longer.

"so we are trying to understand the basic situation and the risks," he said.

This is the second round of testimony made by Powell in Congress this week. Lawmakers asked him a lot of questions about soaring prices before the House Financial Services Committee on Wednesday.

The US consumer price index rose 5.4 per cent year-on-year in June, the biggest increase since 2008.

The US economy is rebounding strongly from the downturn caused by last year's epidemic, and economists expect the economy to grow at an annualised rate of double digits in the second quarter.