The president of the US Federal Reserve (Fed), Jerome Powell, considers that the “recent increase in cases of covid-19 and the emergence of the omicron variant present downward risks to employment and economic activity and increase uncertainty about inflation”.
Powell, who was given a new mandate by Joe Biden at the head of the Fed (central bank), also believes that “the factors that drive inflation upwards will persist next year,” according to a speech he will deliver Tuesday morning to the Senate banking commission, and that was published on Monday.
In his speech, the central bank chief maintains that he is increasingly concerned about this year’s price increases, which have increased pressure on the Fed to raise interest rates.
The Fed slashed rates to zero in the early days of the pandemic and flooded the financial system with liquidity, which along with massive government aid helped prevent a more damaging economic recession.
However, “increased concern about the virus could reduce the willingness to work in person, which would slow down the progress of the labor market and intensify problems in the supply chain,” he adds.
Supply problems caused a shortage of several products that, added to an increasing demand, contributed to accentuate the price increases.
Powell recalls that inflation is “well above” the Fed’s 2% target, and that the central bank’s preferred price indicator registered an annual increase of 5% in October.
While the Fed expects “inflation to decline significantly over the next year as supply and demand imbalances diminish,” Powell acknowledges that the trend is “difficult to predict.”