Omicron variant could impact US economy and increase uncertainty about inflation, says Powell

Federal Reserve Chairman Jerome Powell believes that the recent increase in covid-19 cases and the emergence of the omicron variant pose downside risks for employment and economic activity and increase uncertainty about the inflation.

Powell, whom Joe Biden has given a new term at the head of the Fed, believes even though “the factors driving upward inflation will persist into next year,” according to a speech he will give Tuesday morning at the Senate Banking Committee and which was published this Monday (29).

“Increased concern with the virus could reduce the desire to work in person, which would slow down the advancement of the job market and intensify problems in the supply chain,” he adds.

The supply problems caused shortages of several products which, added to a growing demand, contributed to accentuate the price increases.

Powell warned that inflation is “well above” the agency’s 2% target.

Inflation reached 5% in 12 months in October, its highest level since 1990, according to the PCE index of the Department of Commerce.

“Problems in the supply chain have made it difficult for producers to respond to robust demand. Higher energy prices and rents are also driving inflation,” he added.

While the Fed continues to see “inflation moving significantly down next year”, Powell admits the trend is “hard to predict”.

Powell and Treasury Secretary Janet Yellen will be in Congress Tuesday and Wednesday before the Senate Banking Committee and House Financial Services Committee.