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Fed's Powell Warns Omicron Poses Greater Risks to US Economy, Increases Uncertainty for Inflation

© Chris WattieThe Federal Reserve building is pictured in Washington, D.C., U.S., August 22, 2018.
The Federal Reserve building is pictured in Washington, D.C., U.S., August 22, 2018. - Sputnik International, 1920, 29.11.2021
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WASHINGTON (Sputnik) - The new COVID-19 strain, the Omicron, could bring greater threat to US economic recovery and inflation, Federal Reserve Chairman Jerome Powell said in Senate testimony.
"The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation," Powell said in a speech prepared for delivery during his testimony to the Senate on Tuesday. "Greater concerns about the virus could reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions."
The US economy shrank by 3.5% for all of 2020 due to shutdowns and other disruptions caused by the pandemic. Growth this year has been spotty, with an annualized 3.5% expansion in the first quarter, 3.6% in the second and 2.0% in the third.

The Fed announced in March that it expected a 6.5% economic expansion for all of 2021 and has not changed its target despite the uneven growth in the past three quarters. The problem for the central bank though is inflation as wages and the prices of almost everything have soared from the lows of the pandemic due to supply chain disruptions.
U.S. President Joe Biden visits the Port of Baltimore, Maryland, U.S., November 10, 2021 - Sputnik International, 1920, 25.11.2021
'Bidenflation': Skyrocketing Inflation Hurts 77% of Americans With Majority Blaming Biden, Poll Says
The Labor Department reported earlier this month that the US Consumer Price Index, which represents a basket of products ranging from gasoline and health care to groceries and rents, rose 6.2% during the year to October. It was the fastest growth of the so-called CPI since November 1990, an acceleration driven mostly by pump prices of fuel running at seven-year highs.

Powell and Fed officials who share his thinking have described current price pressures in the economy as "transient", meaning things could return to normal once pandemic-related disruptions in labor and materials supply get sorted out. The Fed’s own tolerance for inflation is supposed to be at just 2% per annum. It is not known if the Omicron will change the central bank’s view of transitory inflation.

US Stocks Recover Bulk of Omicron-Triggered Panic Selling

Wall Street’s three major indexes rebounded strongly on Monday from last week’s panic selling sparked by the disclosure about the new coronavirus strain - the Omicron.
“US stocks are rebounding as optimism grows that the Omicron variant is a cause for concern, but not a 'cause for panic' and could potentially be the catalyst needed to get more of the country vaccinated,” Ed Moya, analyst at online trading platform OANDA, said on Monday. “Investors will learn over the next couple of weeks if the Omicron variant causes more severe disease than the other variants.”
Nasdaq Composite, the pandemic-era go-to index that provides investors the assurance of steady revenues from stay-home stocks, led gains, closing up 291 points, or 1.9%, at 15,783. Nasdaq, which groups Big Tech names such as Facebook, Amazon, Apple, Netflix and Google, fell 2.2% on Friday for its sharpest one-day decline since September 28.
The S&P 500 finished up 57 points, or 1.2%, at 4,652. The index, which consists of the top 500 US stocks, lost 2.3% on Friday for its biggest one-day tumble since January 27.
The Dow Jones Industrial Average settled up 237 points, or 0.7%, at 35,136. The Dow, a blue-chip index grouping mainly industrial stocks, fell 2.5% on Friday for its worst one-day since October 28, 2020.
The World Health Organization said on Monday the Omicron potentially carried a high risk of infection, casting a shadow over economic recovery from the near two-year long COVID-19 pandemic. But some experts said the strain might prove milder than initially feared.
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