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Fed’s Powell sees persistent inflation, downside risk from COVID By Reuters

© Reuters. FILE IMAGE. Federal Reserve Chairman Jerome Powell during a Senate panel hearing on his nomination as head of the central bank, in Washington, USA, November 28, 2017. REUTERS / Joshua Roberts

Por Ann Sapphire

Nov 29 (Reuters) – Federal Reserve Chairman Jerome Powell said on Monday that he continues to expect high inflation to recede over the next year as supply and demand balance better, but warned that the new strain of COVID-19 changes the outlook and prices could continue to rise for longer than previously thought.

“It is difficult to predict the persistence and effects of supply constraints, but it now appears that the factors pushing inflation higher will persist well into next year,” Powell said in testimony prepared to be presented to the Commission on Tuesday. Bank of the United States Senate and published on Monday by the Federal Reserve.

“Also, with the rapid improvement in the labor market, slack is decreasing and wages are increasing at a rapid pace,” he added.

The recent increase in COVID-19 cases coupled with the emergence of the new omicron variant “pose downside risks to employment and economic activity and greater uncertainty for inflation,” he added.

He further noted that health-related concerns could “reduce people’s willingness to work in person, slowing down progress in the labor market and intensifying supply chain disruptions.”

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

But with inflation marching at more than double the Fed’s 2% target, central bank officials have increasingly said they are open to possibly accelerating the reduction in asset purchases to clear the way for rate hikes. interest ahead of schedule if necessary.

Powell did not mention the timeline for the reduction of asset purchases in his prepared remarks, although he did say that the labor market has “ground to cover” before reaching full employment, one of the conditions that the Fed has established before considering raise interest rates from their current levels close to zero.

Powell insisted that the Fed “is committed to our objective of price stability” and will use it to support the economy and the labor market, but also to avoid any inflation spiral.

(Report by Ann Saphir Edited in Spanish by Javier López de Lérida)

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