(ABM FN-Dow Jones) The new Omikron strain of the coronavirus could exacerbate supply chain disruptions that have led to a sharp rebound in inflation. Federal Reserve Chair Jerome Powell warned about this in a speech to the US Senate.
In the speech, the text of which was previously published, Powell emphasized that the new variant could put the Fed in a difficult position in the coming months if inflation were to pick up further and wages rise further.
“The recent rise in the number of corona infections and the emergence of the omikron variant pose downside risks to employment, the economy and lead to more uncertainty for inflation,” Powell said. “Increasing concerns about the virus could make workers less likely to go to work, which will slow the recovery of the labor market and exacerbate supply chain disruptions.”
Powell again pointed out that inflation is well above the 2 percent target. In October, inflation in the US was still 5 percent. Supply chain disruptions have made it difficult for manufacturers to meet strong demand, Powell noted, while high energy prices and higher rents are also contributing to inflation.
The Fed still expects inflation to fall “significantly” in the coming year as supply and demand become more balanced. However, the banker warns that the distortions that are driving inflation will continue well into 2022.
The banker therefore said on Tuesday afternoon that it might be good to no longer speak of a ‘temporary’ high inflation. The Fed, however, has the means to intervene if necessary if inflation remains high for a long time, according to Powell.
Powell went on to say that the job market is improving at a rapid pace. “Wages are rising at a brisk pace.” However, there is still a lot to do before full employment is achieved, the banker said.
Despite this, Powell said on Tuesday that it is an “appropriate” time to discuss whether the “tapering” should not take place at a faster pace. A final decision on this, however, depends on incoming data on the US labor market and inflation. Two US jobs reports will be released later this week.
Update: to add more information.
Bron: ABM Financial News
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