Powell, Yellen to Congress as inflation, variant risks rise

FILE PHOTO: Federal Reserve Chairman Powell testifies on Capitol Hill in Washington
FILE PHOTO: Federal Reserve Chairman Jerome Powell testifies before a Senate Banking, Housing and Urbanization Committee hearing on Capitol Hill in Washington, U.S., July 15, 2021. REUTERS/Kevin. Lamarque / File Photo

November 30, 2021

By Lindsay Dunsmuir

(Reuters) – U.S. lawmakers on Tuesday are expected to burn the heads of the Federal Reserve and the Treasury Department over high inflation and the possible impact of the Omicron COVID-19 variant. new to what both officials see as a strong economy.

Fed Chair Jerome Powell and Treasury Secretary Janet Yellen will testify before the US Senate Banking Committee at 10 a.m. EST (1500 GMT) to discuss the economic recovery from the COVID-19 pandemic. They will also appear before the House Financial Services Committee on Wednesday.

Both released prepared testimony late Monday, with Powell predicting 5% growth this year but noting that the new variant poses downside risks to economic activity and jobs, while also making increased uncertainty around inflation.

Yellen warned lawmakers that failure to address the debt limit would “slow down” recovery.

With inflation at a 31-year high and the Fed’s preferred price pressures measure doubling from its 2% target, the US central bank’s promise to keep the overnight benchmark rate near zero until when a perfectly healthy labor market is threatened.

The unemployment rate in the US now stands at 4.6%, and businesses have nearly 5 million fewer people on collective payrolls than they did before the pandemic.

The Fed this month began easing support for the economy and is now on track to collect $120 billion in monthly purchases of Treasuries and mortgage-backed securities by June. The program was introduced in early 2020 to help support the economy through the pandemic.

With the cost of everyday items like food, gas and rent rising rapidly, Fed officials say they may speed up the taper to give more scope for an earlier rate hike. next year if required, according to the minutes in the central bank’s final policy meeting announced last week. This topic is on the agenda for the Fed’s December 14-15 policy meeting.

That and other recent comments from officials have led analysts to bet increasingly that the Fed could raise rates as early as mid-2022.

Goldman Sachs, in a note to clients, said there was “significant risk” that a cut in central bank asset purchases would be accelerated.

In his preparatory speech, Powell did not mention a reduction at all, but his comments on this variation suggest that he is worried about both the slowing economy and the potential for inflationary pressures. moreover, a predicament would pull Fed policy in the opposite direction.

“The new COVID variant could complicate any plans to speed up the taper at the December meeting, which is the driving force ahead before detection,” said Sam Bullard, senior economist at Wells Fargo. variation,” said Sam Bullard, senior economist at Wells Fargo.


Health officials are racing to determine how contagious and deadly the new variant is and to what extent current vaccines still offer protection. The United States has imposed travel bans on several South African countries where the strain is prevalent.

The now-dominant Delta variant of COVID-19 battered the U.S. economy over the summer, slowing job growth amid worker concerns about catching the virus and exacerbating existing jobs. Supply chain difficulties have led to inflation.

“The existence and effects of supply constraints are difficult to predict, but it is likely that the factors pushing up inflation will persist into next year,” Powell said in his prepared remarks.

He said concerns about the recent increase in COVID-19 cases and the emergence of a new variant of Omicron, “could reduce people’s willingness to work in person, which would slow progress in the labor market and intensifying supply chain disruptions”.

(Reporting by Lindsay Dunsmuir and Ann Saphir; Editing by Paul Simao and Richard Pullin) Powell, Yellen to Congress as inflation, variant risks rise

Bobby Allyn

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