COVID-19 variant obscures inflation and economic outlook – Press telegram



WASHINGTON (AP) – Federal Reserve Chairman Jerome Powell has said the emergence of a new variant of COVID-19 could slow the economy and hiring, while increasing uncertainty over the inflation.

The recent increase in delta cases and the emergence of the omicron variant “present downside risks to jobs and economic activity and increased uncertainty for inflation,” Powell said in prepared remarks that will be presented Tuesday to the Senate Banking Committee. The new variant could also worsen supply chain disruptions, he said.

Powell’s comments come after other Fed officials have said in recent weeks that the central bank should consider ending its ultra-low interest rate policies faster than it is currently anticipating. They raised concerns about inflation, which has peaked in three decades.

Still, Powell’s remarks suggest that the additional uncertainty raised by the omicron variant could complicate the Fed’s next steps.

“Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the job market and intensify supply chain disruptions,” Powell said.

Treasury Secretary Janet Yellen will also testify before the Senate banking panel, and in her prepared remarks she urged Congress to increase the country’s borrowing limit. Yellen previously warned that without raising the debt ceiling, the US government could default on its debt obligations for the first time soon after December 15.

“I cannot stress enough that it is essential that Congress address this issue,” Yellen said. “America needs to pay its bills on time and in full. If we don’t, we’ll gut our current recovery. “

Congress is expected to tackle the borrowing limit and also faces a Friday deadline to provide enough funds to keep the federal government open.

Yellen also said that for now, the economic recovery “remains strong,” but urged Americans to get vaccinated or receive boosters to guard against the omicron variant.

Although not much is definitely known about the health effects of the omicron variant. If this were to cause Americans to cut spending and slow the economy, it could ease inflationary pressures in the months to come.

Still, if the new variant causes another wave of plant closures in China, Vietnam, or other Asian countries, it could make the supply chain grumbles worse, especially if Americans continue to buy more. furniture, appliances and other goods. This, in turn, could push prices even higher in the coming months.

Powell acknowledged that inflation “places significant burdens, especially on those less able to meet the higher costs of basic necessities like food, shelter and transportation.”

He said most economists expect inflation to decline over time as supply constraints ease, but added that “the factors pushing inflation up will persist for a while. a good part of next year “. At a press conference last month, Powell said high inflation could linger until the end of summer.

At their last meeting on November 2-3, Fed policymakers agreed to start cutting the central bank’s $ 120 billion in monthly bond purchases by $ 15 billion per month. That would end shopping in June.

These bond purchases, an emergency measure that began last year, are meant to hold interest rates down over the long term to encourage more borrowing and spending. The Fed has set its short-term interest rate, which affects other borrowing costs such as mortgages and credit cards, at near zero since last March, when COVID-19 erupted for the first time.

Last week, the Fed released the minutes of the November meeting which showed some of the 17 Fed policymakers were in favor of a faster cut in bond purchases, especially if inflation worsens. This would give the Fed the opportunity to raise its key rate as early as the first half of next year.

At that time, investors were expecting three rate hikes next year, but the odds of those many hikes have fallen sharply since the new variant of the coronavirus emerged.


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