Fed’s Powell Sees Persistence of Inflation and Covid-19 Risks

Federal Reserve chairman Jerome Powell said on Monday that he continued to expect inflation to decline next year as supply and demand balance, but warned that the new Covid-19 strain clouded the picture. , and that prices may continue to rise for longer than previously thought.

“It is difficult to predict the persistence and effects of supply restrictions, but it now appears that factors driving inflation will persist into next year,” Powell said in statements prepared for Tuesday at the US Senate Banking Committee, and released in the second by the Fed.

The economy continues to strengthen, and the job market to improve, raising wages, he said.

But the recent increase in Covid-19 cases and the emergence of the new Ômicron variant “presents downside risks to employment and economic activity and heightened uncertainty for inflation,” he said, noting that health concerns could “reduce the willingness of people to work face-to-face, which can slow progress in the labor market and intensify problems in the supply chain.”

This month, the Fed began to reduce its support for the economy, gradually reducing asset purchases at a pace that could end them until next June.

But with inflation more than double the Fed’s 2% target, officials have increasingly said they are open to potentially speeding up buying down to pave the way for an interest rate hike sooner if necessary.

Powell did not speak about the schedule for reducing purchases in his prepared statements, but said the labor market has “room to recover” before reaching full employment, one of the conditions the Fed has set to assess raising interest rates against the current level close to zero.

According to Powell, the Fed “is committed to our goal of price stability” and will use its tools to support the economy and the labor market and to “prevent higher inflation from taking hold.”