The arrival of Omicron “infects” the Federal Reserve’s outlook. Fed chairman Jerome Powell, newly appointed to head of the central bank by Joe Biden, in his first public opinion since the discovery of the coronavirus variant expresses concern about its potential impact on the economy. An impact which, he explicitly states, poses “risks for employment and economic activity and which increases the uncertainty of inflation”. Treasury Secretary Janet Yellen, who testifies on November 30 alongside Powell in the Senate, in turn cites the persistence of the unknown virus.
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President Biden, in an effort to send a message that is both serious and reassuring, has affirmed in the last few hours that the new variation is “a cause for concern but not for panic”. Powell, like Yellen, shortly afterward released his introductory statements prepared for the MPs, taking head-on what he calls the “recent rise in Covid-19 cases and the emergence of the Omicron variant.”
Progress on the labor market is at risk
Powell, in his speech, says that “increased concerns about the virus could reduce the propensity to work face-to-face, which in turn would slow progress in the labor market and intensify the trauma in the supply chain.”
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Longer lasting inflation
As regards inflation, he adds in particular to predict that at this point “the factors that push it upwards will remain in action well into next year”. Although he added that “it is difficult to predict the persistence and effects of supply chain bottlenecks,” which could be exacerbated by Omicron. Powell also cited “at a robust pace” wage increases among the factors that can drive prices.
We will respect the mandate on price stability
Powell, in seeking a balance between aid to growth and fight against inflation, promises that the Fed “will use its tools both to support the economy and a strong labor market and to prevent increases in inflation from taking root.” Also because the Fed is aware that “higher inflation weighs significantly above all on those who are less able to afford essential goods such as food”. The Central Bank “is committed to respecting the mandate on price stability”.