Fed sees inflationary pressure from COVID omicron variant

Fed sees inflationary pressure from COVID omicron variant

“Also, with the rapid improvement in the labor market, slack is decreasing and wages are increasing at a rapid rate,” he added.

The recent increase in COVID-19 cases coupled with the emergence of the new omicron variant “pose downside risks to employment and economic activity and greater uncertainty for inflation,” he added.

He further noted that health-related concerns could “reduce people’s willingness to work in person, slowing progress in the labor market and intensifying supply chain disruptions.”

The Fed began this month to reduce its support for the economy, gradually reducing its asset purchases at a rate that would end them next June.

But with inflation marching at more than double the Fed’s 2% target, central bank officials have increasingly said they are open to possibly accelerating the reduction in asset purchases to clear the way for rate hikes. interest ahead of schedule if necessary.

Powell did not mention the schedule for the reduction of asset purchases in his prepared remarks, although he did say that the labor market has “ground to cover” before reaching full employment, one of the conditions that the Fed has established before considering raise interest rates from their current levels close to zero.

Powell insisted that the Fed “is committed to our objective of price stability” and will use it to support the economy and the labor market, but also to avoid any inflation spiral.