The Omicron version of COVID-19, as well as a recent increase in coronavirus infections, according to Federal Reserve Chairman Jerome Powell, represent a threat to the US economy and confuse an already-uncertain inflation forecast.
“The recent spike in COVID-19 cases, as well as the emergence of the Omicron variation, represent significant risks to employment and economic activity, as well as increasing inflation uncertainty,” says the report. Powell said Tuesday in a speech to Senate senators. “A greater dread of the virus might reduce people’s inclination to work in person, stalling labor market progress and increasing supply-chain issues.”
The central bank announced Powell’s remarkets on Monday evening. The Fed chairman also addressed inflation directly. He said that it’s difficult to predict the duration and impact of supply limitations. However, it now looks like “factors pushing inflation upward will endure well into next year.”
Many forecasters, including some at the Federal Reserve, predict that inflation will fall “significantly” in the coming year. The reasoning behind this is bulked-up supply chains outpace cooling demand for goods.
Economic Recovery, Inflation, and COVID Updates
Powell’s comments come only days after investors sold US equities. They pushed back their expectations for future Fed rate rises due to concerns about a new COVID version. On Friday, the Dow Jones Industrial Average fell 900 points or 2.5 %. It finished the week with its worst session of the year. On Monday, the stock market began to recover some of its losses. Concerns over the spread and possible effect of the Omicron coronavirus variety drove traders to the relative safety of Treasury bonds on Friday. This lowered their expectations for future Fed rate rises.
According to the CME Group’s FedWatch tool, around 25% of investors believe the Fed will keep interest rates near zero in June 2022. Meanwhile, the other 75% believe the central bank will have risen rates at least once by then. Due to the new variation, the spread has decreased. About 35% of investors now predict the Fed will keep rates near zero in June 2022.
On Friday, the benchmark 10-year Treasury note yield fell 15 basis points to 1.49 percent. Afterward, it surged beyond 1.5 percent on Monday.
