Powell: "Omicron May Negatively Impact Economy, Employment, and Inflation" (Update)

Potential Impact of Fed Tapering and Interest Rate Hikes

[Image source=AP Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Jerome Powell, Chairman of the Federal Reserve (Fed), assessed that the Omicron COVID-19 variant could exert downward pressure on the U.S. economy and employment. He particularly evaluated that inflation outlook could also become more uncertain.

Chairman Powell revealed this in his prepared remarks released ahead of his testimony before the U.S. Congress on the 29th (local time). Powell expressed considerable concern about the Omicron variant, which is known for its strong transmissibility.

Powell stated, "The recent increase in COVID-19 infections and the emergence of the Omicron variant pose downside risks to employment and economic activity and increase uncertainty about inflation."

He expressed concern that "greater worries about the virus could reduce the willingness to return to workplaces, delaying improvements in the labor market and exacerbating supply chain disruptions."

However, Powell forecasted that "inflationary pressures will remain elevated for a considerable period next year," but explained that many experts expect inflation to eventually decline significantly as supply exceeds demand.

Powell is scheduled to appear and testify before the U.S. Senate Banking Committee on the 30th, along with Treasury Secretary Janet Yellen.

The Wall Street Journal reported that Powell's remarks suggested that the Omicron variant could complicate the Fed's efforts to complete asset purchase tapering and raise interest rates, as it acts as a cause of worsening inflation and wage increases.