Yellen: "Omicron Variant Poses Significant Threat to Global Economy"

(Source: Reuters)

[Asia Economy Reporter Yujin Cho] Janet Yellen, U.S. Treasury Secretary, warned that the new variant virus Omicron could pose a significant threat to the global economy.

On the 2nd (local time), at a virtual conference hosted by a local media outlet, she said that Omicron could slow global economic growth due to worsening global supply chain issues and weakened demand.

She mentioned that the emergence of the Delta variant earlier this year caused a slowdown in the U.S. economy and said that Omicron's high transmissibility and uncertainty about its nature could have considerable repercussions.

Secretary Yellen said, "I hope Omicron will not be a major factor slowing economic growth," adding, "There is a lot of uncertainty and it could cause serious problems, so we are still assessing its impact."

In a situation where Omicron has factors that both raise and lower prices, Secretary Yellen placed more emphasis on the former.

She said that if Omicron spreads, it could worsen supply chain collapse issues, causing supply shortages and triggering another wave of inflation.

However, she added that with international oil prices plunging due to the Omicron shock, the real economy could contract and growth could slow, which might somewhat ease inflationary pressures.

She also echoed Federal Reserve Chairman Jerome Powell’s recent remarks that it is time to stop using the word "transitory" regarding inflation.

She said, "I am ready to stop using the word 'transitory' about inflation," and agreed that it is not an appropriate term to describe the current situation.

She pointed out that the stimulus spending taken by the Joe Biden administration earlier this year is not the main cause of the current inflation.

While fiscal spending may have contributed somewhat to inflation, she explained that the sharp rise in prices is mostly due to the collapse of the supply chain ecosystem caused by the COVID-19 pandemic and the shift in demand from services to goods.