US: Threat of persistent inflation grows as a new variant of COVID-19 could slow economic recovery.

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source: www.rollcall.com

Federal Reserve Chairman Jerome Powell warned that rising coronavirus cases could slow progress in employment and economic growth.

The threat of "persistent high inflation" has risen in the United States. The Federal Reserve (Fed, central bank) will consider the possibility of withdrawing stimulus more quickly, its head, Jerome Powell, said on Tuesday.

For months, Powell has called the explosion in inflation "transitory," citing bottlenecks in the supply chain and shortages of goods and workers. However, this Tuesday, he told the Senate Banking Committee that it was time to " withdraw " that term.

The central bank's benchmark price indicator posted a 5% rise in the 12 months ending in October, well above the Fed's 2% target.

"The risk of more persistent inflation has increased," Powell told lawmakers. But he said the Fed "will use its tools to make sure that higher inflation doesn't take hold."

The Fed has already begun to withdraw its stimulus measures put in place to cushion the blow of the pandemic on the economy. Still, Powell had previously said that authorities could wait to raise interest rates on loans, arguing that the problems of supply would be resolved in the next few months.

However, he suggested that the pace of withdrawal from monthly asset purchases could be accelerated at this hearing. That would mean that the Fed would be in a position to raise the benchmark interest rate earlier than expected.

On the other hand, Powell warned that the rise in cases of covid-19 and the new variant of the coronavirus, omicron, could slow down progress in employment and economic growth, in addition to adding more significant "uncertainty" about inflation.

"Increased concern about the virus could reduce people's willingness to work in person, slowing progress in the job market and intensifying problems in supply chains," Powell said.

In addition, Powell announced that the Federal Reserve could accelerate the withdrawal of its multibillion-dollar bond purchase program to try to contain inflation.

"The economy is robust, and inflationary pressures are high, and therefore it is appropriate in my opinion to accelerate the completion of our bond purchases perhaps a few months earlier, " he told lawmakers.

The US central bank has kept interest rates between 0% and 0.25% since March 2020 to support the economy with the arrival of the pandemic, and then launched a multi-million dollar monthly bond purchase program, whose Gradual rollback started this November.

The Fed will hold its last monetary policy meeting of the year on December 14 and 15. It will present its new macroeconomic forecasts, which in September stood at a growth rate of 5.9% and inflation of 4.2% by the end of 2021.