Powell: "Omicron Emergence Increases Inflation Uncertainty in the US"

Moody's Also Warns of "Risks to Economic Growth and Inflation"

[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 noted that inflation outlooks could become more uncertain, suggesting that the Omicron variant might also affect the timetable for interest rate hikes.

International credit rating agencies such as Moody's and Fitch also forecast that the Omicron variant could damage global economic growth prospects and drive up prices.

In his prepared remarks released ahead of his testimony to the U.S. Congress on the 29th (local time), Chairman 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 "a bigger worry related to this virus is that it could dampen people's willingness to work in person," which "could slow progress in the labor market and exacerbate supply chain disruptions."

The Wall Street Journal reported that Powell's remarks implied 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 rising wages.

On the same day, Moody's diagnosed that "amid existing supply chain disruptions, rising prices, and labor shortages burdening the global economy, Omicron poses risks to global economic growth and inflation."

Following Chairman Powell's remarks, U.S. Treasury yields fell, especially in the short-term sector. The 2-year Treasury yield, which is most sensitive to monetary policy, dropped from 0.51% before Powell's remarks to 0.48% immediately after. A decline in Treasury yields indicates a rise in Treasury prices.

The Omicron variant is spreading rapidly, especially in Europe. As concerns over Omicron grew, the U.S. Centers for Disease Control and Prevention (CDC) upgraded its recommendation that all adults should receive an additional booster shot.