Fed Chairman Powell says omicron variant poses a risk to the economy and complicates inflation

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Federal Reserve Chairman Jerome Powell testifies during a Senate Committee on Banking, Housing and Urban Affairs hearing on the CARES Act, at the Senate Hart office building in Washington, DC, USA, on 28 September 2021.

Kevin Dietsch | Reuters

Chairman of the Federal Reserve Jerome powell believes that the omicron variant of Covid-19 and a recent spike in coronavirus cases pose a threat to the US economy and confuse an already uncertain inflation outlook.

“The recent spike in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” Powell said in comments he plans to deliver to lawmakers from the Senate on Tuesday. “Increased concern about the virus could reduce people’s willingness to work in person, slowing progress in the job market and intensifying supply chain disruptions.”

secretary of the treasury Janet yellen will join Powell on Tuesday in testify before the Senate Banking Committee. The Fed chief and Treasury secretary are required to report to Congress each calendar quarter as part of the March 2020 economic relief legislation that magnified the central bank’s emergency loan programs.

Powell’s remarketing was released by the central bank on Monday night.

The Fed chief also offered more direct comments on inflation, saying that forecasting the persistence and impact of supply restrictions is challenging, but that it now appears that “the factors that push inflation higher will hold well into the future. next year”.

He noted that many forecasters, including some from the Fed, predict inflation will decline “significantly” over the next year as augmented supply chains outpace demand for cooling products.

Powell’s comments came just days after fears about a new variant of Covid prompted investors to ditch US stocks and roll back their expectations of future Fed rate hikes. The Dow Jones Industrial Average fell 900 points, or 2.5%, on Friday and secured his worst session of the year on the last trading day of the week. Markets recovered a bit on Monday.

Concerns about the spread and potential impact of the coronavirus variant omicron prompted traders on Friday to flock to the relative safety of Treasuries and cut their forecast for future Fed rate hikes.

Last week, about 25% of investors said they thought the Fed would still have interest rates near zero in June 2022, with the other 75% betting that the central would have risen at least once by then, according to the CME Group FedWatch tool. Since then, that spread has narrowed thanks in part to the new variant, and about 35% of investors are now betting that the Fed will continue to have rates close to zero in June 2022.

The yield on the benchmark 10-year Treasury bond fell 15 basis points on Friday to 1.49% before bouncing above 1.5% on Monday. Bond yields fall as their prices rise.

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