Washington, United States | AFP | The president of the United States 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 on Tuesday morning before the Senate banking commission, and it was released 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 which, added to an increasing demand, contributed to accentuate the price increases.
-Unpredictable inflation-
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.”
Noting that rising prices hurt “those least able to bear the burden,” especially black and Hispanic families, Powell vows to act to support the recovery and “prevent higher inflation from taking hold.”
The Fed has already begun to withdraw its stimulus measures implemented to relaunch the economy after the downturn caused by the pandemic, but Powell has already told policy makers that the rate hike will take time to come.
However, more Fed officials have signaled that rates could start to rise from their current value of zero in mid-2022.
Some private economists predict three increases next year.
– ‘Gut’ recovery –
Treasury Secretary Janet Yellen, who is scheduled to testify in the Senate along with Powell, said America’s recovery is on the way, with the creation of half a million jobs a month on average since the beginning of the year.
However, he warns lawmakers that failing to raise America’s debt limit will undermine that progress.
“I am not exaggerating when pointing out how critical it is that Congress addresses this issue. The United States must pay its bills on time and in full. If we do not, we will gut our current recovery,” he warns according to his testimony that he will give on Tuesday in the Congress.
Yellen anticipated earlier this month that the Treasury will run out of funds on December 15, unless Congress raises or suspends the borrowing limit.
