Fed’s Powell calls omicron variation a risk to economic growth

Fed watchers are divided on what omicron spread means for Fed policy.

Until news of this variant was announced last week, Fed watchers assumed that the central bank was preparing to accelerate the pace of easing its asset purchases at a faster pace to The sale may close in March instead of June.

Chris Low, chief economist at FHN Financial, notes that the Fed is not very responsive to delta variation.

But others argue that the omicron will prompt the Fed to take a patient approach.

“If a clearer and reasonably positive picture has not yet emerged by the time of the December 14-15 meeting, the Fed will probably delay the decision,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. intended to accelerate the rate of decline. in a note to customers.

Yield on 10-year Treasury note
TMUBMUSD10Y,
1,499%

fell nearly 1.5% from nearly 1.7% late last week after the new variant emerged.

The World Health Organization says the global risk from the new variant is very high.

In his testimony, Powell said the Fed continues to expect that inflation “will fall” significantly next year as supply and demand imbalances ease.

“The existence and impact of supply constraints is difficult to predict, but for now it seems likely that the factors driving inflation higher will persist into next year,” Powell said.

He added that the labor market is improving rapidly, with wages rising at a breakneck pace.

Matt Luzzetti, chief US economist at Deutsche Bank, thinks the Fed will double its monthly asset purchase reduction to $30 billion from $15 billion a month. He also moved towards lifting short-term interest rates from July to June.

“However, if the key data points for the next two weeks are materially disappointing, the market turmoil does not subside, or the negative news becomes apparent on the virus front, we will see reconsider this expectation,” Luzzetti said in a note to clients.