Federal Reserve Chairman Jerome Powell is expected to testify on Tuesday that the Omicron variant threatens the US economic recovery.
Much remains unknown about Omicron. Yet if that prolongs the pandemic, it could keep prices up, hurt job growth and worsen the supply chain crisis, Powell is expected to tell Congress.
“The recent increase in Covid-19 cases and the emergence of the Omicron variant present downside risks to jobs and economic activity and increased uncertainty for inflation,” Powell wrote in prepared testimony. that he is preparing to deliver Tuesday to the Senate Committee on Banking, Housing, and Urban Affairs.
Wall Street sold stocks and oil on Friday after learning about the potentially highly infectious and more immune-resistant variant. But the market regained much of its lost ground on Monday after investors caught their breath and sensed a buying opportunity.
Shares also sold when Wall Street first heard about the Delta variant, but it quickly rebounded and hit new highs as vaccine availability spread and health officials learned better. manage the pandemic.
In his prepared testimony, Powell noted that the economy took a hit over the summer as the Delta variant spread across the world. Many Americans were afraid to travel, shop, eat out, and go back to work. This has kept caregivers at home, exacerbating the labor shortage and supply chain crisis that have held back the U.S. economy.
But infections declined throughout the fall and the economy picked up speed. Powell predicted that the US economy would experience robust growth of 5% this year. As infections declined, from September the labor market rebounded and the unemployment rate fell to 4.6%, the lowest rate since May 2020.
The economy has fluctuated with rising and falling infections, and Omicron threatens to undo much of the economic goodwill America has generated over the fall months.
“Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the job market and intensify supply chain disruptions,” Powell wrote in his testimony.
Powell, who President Biden recently reappointed for a second term as Fed chairman, said the imbalance between supply and demand had artificially pushed prices far above the inflation target annual rate of 2% from the Fed. Americans spent about 5% more on goods and services this year, Powell noted.
Inflation could be here to stay a bit longer, Powell said. It’s a bit of a trap: The labor shortage had pushed up wages (and prices), but with job growth accelerating in recent months, employers are finding fewer candidates for the job. their available jobs – and they must raise wages to attract new workers.