Federal Reserve Chair Jerome Powell will testify on Tuesday that the Omicron variant threatens America’s economic recovery.
Much is still unknown about Omicron. But if it prolongs the pandemic, it could send prices soaring, hurt job growth and exacerbate the supply chain crisis, Powell is expected to tell Congress.
“The recent increase in Covid-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” Powell wrote in prepared testimony he will deliver to the Senate Committee on Tuesday. for Banks, Housing, and Urban Affairs.
Wall Street sold stocks and oil on Friday after learning about the potentially highly contagious and more immune-resistant strain. But the market regained much of its lost ground on Monday after investors took a breath and sensed a buying opportunity.
Shares sold similarly when Wall Street first learned of the Delta variant, but it quickly rebounded, hitting new records as vaccine availability spread and health officials learned how to better manage the pandemic.
In his prepared testimony, Powell noted that the economy took a major hit over the summer as the Delta variant spread around the world. Many Americans were afraid to travel, shop, eat at restaurants and return to the office. That kept caregivers at home, exacerbating the labor shortage and supply chain crisis that has held back the US economy.
But the number of infections dropped during the autumn and the economy picked up steam. Powell predicted that the US economy would grow at a solid 5% this year. When the number of infections dropped from September, the labor market recovered and the unemployment rate fell to 4.6%, the lowest rate since May 2020.
The economy was ebbing and flowing with infections rising and falling, and Omicron is threatening to undo much of the economic goodwill that America has generated in the fall months.
“Greater concerns about the virus could reduce people’s willingness to work personally, which would slow progress in the labor market and amplify supply chain disruptions,” Powell wrote in his testimony.
Powell, recently nominated by President Biden for a second term as Fed chairman, said the supply-demand imbalance has artificially pushed prices far above the Fed’s annual inflation target of 2%. Americans have spent about 5% more on goods and services this year, Powell noted.
Inflation could stay here a little longer, Powell said. It’s a bit of a catch-22: The labor shortage had caused wages (and prices) to rise, but as job growth has accelerated in recent months, employers are finding fewer applicants for their available jobs — and must raise wages to find new ones. workers.