Fed’s Powell Sees Inflation Persistent, COVID Risks

Jerome Powell waits to testify before the Senate Committee on Banking, Housing, and Urban Affairs on his nomination to become chairman of the US Federal Reserve in Washington, United States, November 28, 2017. REUTERS / Joshua Roberts / File Photo

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Nov. 29 (Reuters) – U.S. Federal Reserve Chairman Jerome Powell on Monday said he continued to expect inflation to decline over the next year as supply and demand balance better, but warned the new strain of COVID-19 blurs the outlook, and prices could continue to rise longer than expected.

“It is difficult to predict the persistence and effects of supply constraints, but it now appears that the factors pushing inflation up will persist for much of next year,” Powell said in prepared testimony. for delivery Tuesday to the US Senate Banking Committee, and released Monday by the Fed.

The economy continues to strengthen and the labor market to improve, pushing up wages, he said.

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But the recent increase in COVID-19 cases and the emergence of the new Omicron variant “present downside risks to jobs and economic activity and increased uncertainty for inflation,” he said. he said, noting that health problems could “reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply chain disruptions.”

The Fed began this month to reduce its support for the economy by gradually reducing its asset purchases at a pace that would end them by next June.

But with inflation more than double the Fed’s 2% target, Fed officials have increasingly declared themselves open to a potential acceleration of the cut to pave the way for rate hikes. interest sooner if necessary.

Powell did not mention the taper delay in his prepared remarks, although he said the labor market had “some way to go” before reaching full employment, one of the conditions the Fed has. fixed before considering raising interest rates from their current level. zero levels.

The Fed, Powell promised, “is committed to our goal of price stability” and will use its tools both to support the economy and the labor market and to “prevent higher inflation from taking hold.”

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Reporting by Ann Saphir; Editing by Dan Burns and Rosalba O’Brien

Our Standards: Thomson Reuters Trust Principles.

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