WASHINGTON — The Omicron variant will not send the economy back to 2020 levels, Federal Reserve Chairman Jerome Powell told lawmakers on Tuesday. Powell said that despite inflation hitting a 31-year high, the economy is strong, with robust spending signaling growth in 2022.
“I’m not thinking that the effects on the economy will be remotely comparable to what happened last March with the shutdowns or that there will be additional shutdowns,” Powell said. “We’re focused on maximum employment and price stability and we’ve tried to adapt our policy as we’ve moved along, we’ll continue to do that.”
Pandemic-related supply and demand imbalances have contributed to notable price increases in food, shelter, vehicles and gasoline. In response, the consumer price index, which measures changes in how much Americans pay for certain goods and services, rose 0.9% in October, the U.S. Bureau of Labor Statistics reported.
Powell says that these higher prices are related to supply and demand imbalances that can be traced directly back to the pandemic and the reopening of the economy. He said that increased concerns about COVID-19 could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.
Powell, who President Biden controversially nominated for a second four-year term days before the Thanksgiving recess, warned that rising COVID-19 cases and the emergence of the Omicron variant present inflation concerns. To address them, Powell said the Federal Reserve will look at the new variant’s transmissibility, ability to bypass vaccination antibodies and its severity once it is contracted to determine its response.
“We’ll know something within a week or ten days,” Powell said. “Then and only then can we make an assessment of what the impact would be on the economy.”
Powell said the Federal Reserve expects inflation will significantly decrease over the next year, but factors including increased energy and rent costs that push inflation upward will last through the middle of next year.
“What you’ve seen is you’ve seen our policy adapt, and you’ll see it continue to adapt,” Powell said. “We’ll use our tools to make sure that higher inflation does not become entrenched.”