Fed chair: Omicron adds economic risks

Emerging threat: A worker stacks bins at an Amazon fulfillment centre in New Jersey. Powell says the emergence of the Omicron variant poses downside risks to employment. — Bloomberg

NEW YORK: Federal Reserve (Fed) chair Jerome Powell, in his first public remarks on the Omicron variant of the coronavirus, says it poses risks to both sides of the central bank’s mandate to achieve stable prices and maximum employment.

“The recent rise 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 prepared testimony released Monday, a day ahead of his appearance before the Senate Banking Committee.

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

Powell, in the relatively brief text, didn’t discuss specific monetary policy actions or the possibility of changing the pace of the tapering of its asset purchases – a key issue that other officials have flagged in recent remarks.

Powell – who a week ago was selected by President Joe Biden for a second term as central bank chief – appeared before the panel yesterday together with Treasury Secretary Janet Yellen, in the first of two days of congressional oversight hearings related to pandemic stimulus.

The House Financial Services Committee will follow with a separate hearing today.

US central bankers are grappling with fresh uncertainty over the economy following the discovery of the new variant of Covid-19. Governments around the world stepped up restrictions on travel and the World Health Organisation warned that the Omicron strain could fuel a fresh surge in infections.

Despite strong job growth this year, “there is still ground to cover to reach maximum employment for both employment and labour force participation, and we expect progress to continue,” Powell said, adding that joblessness continues to fall “disproportionately” on Blacks and Hispanics.

Even amid the challenges posed by the pandemic, the United States economy is powering ahead. JPMorgan Chase & Co economists have upgraded their estimate for annualised growth to 7% from 5% for the final three months of the year.

The boom has fuelled high inflation, with consumer prices in October rising at the fastest pace in 30 years.

“Most forecasters, including at the Fed, continue to expect that inflation will move down significantly over the next year as supply and demand imbalances abate,” Powell said.

“It is difficult to predict the persistence and effects of supply constraints, but it now appears that factors pushing inflation upward will linger well into next year.”

Fed officials in recent weeks had discussed the possibility of speeding up the pace at which they scale back the central bank’s monthly asset purchases, which would give them the option to raise interest rates sooner than otherwise next year if needed to keep price pressures in check. — Bloomberg

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