Powell to tell Senate omicron variant poses downside risk to economy, complicates inflation picture

Federal Reserve Chairman Jerome PowellConsiders that Covid-19’s omicron version and an increase in coronavirus cases are a danger to the U.S. and could muddle the already uncertain inflation outlook.

Powell stated that the recent increase in COVID-19-related cases, and the emergence Omicron variant of the virus pose downside risks for employment and economic activity as well as increased inflation uncertainty in his remarks to Senate legislators on Tuesday. “Dangerous virus concerns could decrease people’s desire to work in person. This would slow down progress in labor markets and increase supply chain disruptions.

Treasury Secretary Janet YellenPowell joins Powell in Tuesday’s Inaugural testifying before the Senate Banking Committee. Each quarter, both the Fed chief executive and Treasury secretary must report to Congress as part of the March 2020 Economic-Relief Legislation that increased the bank’s emergency lending programs.

On Monday, the central bank published Powell’s remarkets.

Additionally, the Fed chief made more specific comments about inflation. He said it is difficult to project supply restrictions’ persistence and effect, but it seems that inflation “factors that push it upward” will continue into next year.

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He pointed out that many economists, including those at the Fed predict that inflation will fall “significantly” in the coming year, as better-managed supply chains take over cooling demand.

Powell made the remarks just days after investors were frightened by a new Covid version. Investors began to abandon U.S. stocks, and to rethink their hopes for Fed rate increases in future. The Dow Jones Industrial Average lost 900 points (or 2.5%) on Friday. clinched its worst session of yearThe week’s last day of trading. On Monday, markets showed some improvement.

Besorginism about possible spread and impact the omicron coronavirus variantOn Friday, traders flocked to Treasury bonds for their relative safety and reduced the likelihood of future Fed rate increases.

According to CME Group’s FedWatch instrument, 25% of investors believed the Fed would maintain interest rates close to zero by June 2022. The remaining 75% thought that the central bank would raise at least one time before then. This spread has narrowed partly due to the new variant. Some 35% now bet that the Fed would still have rates at or near zero in June 2022.

After falling 15 basis point to 1.49 % on Friday, the benchmark 10-year Treasury Note yield rebounded back above 1.5% on Monday. As their prices rise, bond yields drop.

While these lending programs were ended by the Fed earlier in the year, it is only now that the central bank has begun to reopen them. reduce its $120 billion in monthly purchasesTreasury debt and mortgage security. At its recent policy meeting, the central bank decided to reduce its routine asset purchases in light of widespread supply chain disruptions and high inflation. not seen in the U.S. since the 1990s.

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