A top Federal Reserve official warned that Coronavirus variant Omicron threatens to fuel higher inflation in the US by putting more pressure on supply chains and worsening worker shortages.
“If it turns out to be a bad variant, it could exacerbate the bullish price pressure we’ve been seeing since supply chain problem“, Loretta Mester, president of the Cleveland Fed, told the Financial Times in an interview on Thursday.
Mester added that there is a risk that if Omicron is “more toxic than Delta” people will lose or quit their jobs during epidemic will continue to stay at home. “The fear of the virus remains one of the factors that keep people from returning to the workforce,” she said.
The collapse of global supply chains and The shortage of workers in the US, the two main factors that caused inflation to skyrocket to a 30-year high.
The comments from Mester are the latest sign that the Fed intends to push for a rollback of the massive stimulus measures it adopted at the start of the pandemic, despite the potential risks to the economy. American economy from the new variant.
Earlier this week, Jay Powell signaled that anti-inflation was a priority for the US central bank during his two days of testimony before Congress, during which he made only a brief admission of the damage Omicron could do to the recovery.
Mester, who will be a voting member of the Federal Open Market Committee that sets policy next year, has also played down the risk that this variant could reduce demand – especially if the current vaccine case proved to be effective.
“The economy copes better with these variations,” she said. “Demand side effects have been reduced, but we have seen these supply side effects, which are related to the virus.”
Mester reiterates Powell by saying she will support faster withdrawals The Fed’s massive bond-buying program as a form of “insurance” gives the central bank more flexibility in raising interest rates next year.
“We have to address the risk that those persistently high inflation numbers could turn out to be more severe,” she said on Thursday. “It really gives us options. . . to make moves on the interest rate path. “
Mester said she would support at least one rate hike next year, and that two might be “appropriate”.
This week, Powell told Congress this week he believes raised should “consider wrapping up our asset purchases. . . perhaps a few months earlier”.
Mary Daly, president of the Federal Reserve Bank of San Francisco, also expressed support for an earlier drop on Thursday. “If we don’t have higher inflation, you can let the economy grow a bit more to see if we can get through Covid and have some [unemployed] individuals come back,” she said at an event hosted by the Peterson Institute for International Economics.
Atlanta Fed’s Raphael Bostic has also indicated his support for faster acceleration, while Fed vice chair Richard Clarida said last month he supported the FOMC to discuss the issue at its next policy meeting. scheduled for December 14 and 15.
