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

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  • Fed Chairman Jerome Powell believes the Omicron version of COVID-19 and the recent rise in coronavirus cases threaten the US economy.
  • He said in prepared remarks, concerns over the new version “could reduce people’s willingness to work individually, which would slow progress in the labor market and accelerate supply-chain disruptions.”
  • Treasury Secretary Janet Yellen will join Powell on Tuesday to testify before the Senate Banking Committee.

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Federal Reserve Chairman Jerome Powell believes that the Omicron version of Covid-19 and the recent rise in coronavirus cases threaten the US economy and affect an already uncertain inflation outlook.

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“The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increase uncertainty for inflation,” Powell plans to deliver to Senate lawmakers on Tuesday. developed.” “Greater concern about the virus could reduce people’s willingness to work individually, which would slow progress in the labor market and accelerate supply-chain disruptions.”

Treasury Secretary Janet Yellen will join Powell on Tuesday Testifying before the Senate Banking Committee, The Fed chief and the Treasury secretary are required to report to Congress every calendar quarter as part of a March 2020 economic-relief law that extended the central bank’s emergency loan programs.

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Powell’s remarketing was released by the central bank on Monday evening.

The Fed chief offered more direct comments on inflation, saying that it is challenging to predict the persistence and impact of supply constraints, but it now appears that “the factors pushing inflation upwards will last well into next year.” “

He added that many forecasters, including some at the Fed, predict inflation will come down “significantly” over the next year as the wholesale supply chain is overtaken by cooling demand for goods.

Powell’s remarks come just days after fears over a new Covid version prompted investors to ditch US stocks and push back their hopes for future Fed rate hikes. The Dow Jones Industrial Average dropped 900 points, or 2.5%, on Friday and recorded its worst session of the year on the last day of trading the week. There was a slight decline in the market on Monday.

Traders flocked to the relative safety of Treasury bonds on Friday as concerns about the spread and potential impact of the Omicron coronavirus pandemic lowered their forecast for future Fed rate hikes.

According to CME Group’s FedWatch tool, last week, nearly 25% of investors said they think Fed interest rates will be near zero in June 2022, with the other 75% betting central will rise at least once. That spread has since narrowed thanks to the new version, with some 35% of investors now betting the Fed will still have rates near zero in June 2022.

The yield on the benchmark 10-year Treasury note fell 15 basis points to 1.49% on Friday, having jumped above 1.5% on Monday. Bond yields fall as their prices rise.

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While the Fed ended those lending programs earlier this year, the central bank has only begun to reduce $120 billion in monthly purchases of Treasury loans and mortgage securities. The central bank at its most recent policy meeting decided to reduce its regular asset purchases amid widespread supply-chain disruptions and a level of inflation not seen in the US since the 1990s.

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