/Fed warns omicron will slow inflation decline
Fed warns omicron will slow inflation decline

Fed warns omicron will slow inflation decline

The president of the Federal Reserve of the United States sees the new concerns related to health as possible reducers of the willingness of people to work in person, something that can slow down the progress that is being produced in the vast majority of labor markets.

Jerome Powell, who chairs the Fed, indicated this week that they are still waiting for high inflation to decline in 2022, while supply and supply demand reach a better balance.

Although it has warned that the new variant of coronavirus modifies the outlook, so it is possible that prices will continue to grow for a longer time than previously believed.

In addition, he said that it is difficult to predict the persistence and consequences of the sharp drop in supply, although something is very clear: the macro and micro economic elements that stimulate inflation will continue until well entered 2022.

You are declaring The actions are part of a testimony that Powell prepared to read this week in the Banking Committee of the US Senate and that the central bank of that country has published. In the text, he also indicated that due to the rapid improvement that is taking place in the US labor market, the amount of available labor is decreasing and wages are on the rise and at an accelerated rate.

Omicron and the economy

The new growth of coronavirus cases in the world and the emergence of the omicron strain mean, for all analysts, risks of job loss and in economic activity, in addition to great uncertainty due to inflation.

The variant, according to the Fed text, could also cause the problem of interruptions in supply chains to increase .

In search of inflationary stability, the highest US monetary authority in November began to reduce its support for the economy, which means a gradual decrease in its asset purchases at a rate that can end in the middle of 2022.

Although with inflation rising more than Once the target set by that central bank (2 percent), Fed representatives said they are increasingly open to possible reductions in asset purchases with the aim of paving the way for rate hikes. interest earlier than planned, should it be needed.

Powell said nothing about the timing of this reduction in asset purchases in his report, but did indicate that the labor market has places to cover in order to reach full employment, which is a condition that the agency established prior to planning to raise interest rates from their current level close to zero.

The president of The Fed said that the agency is fully committed to its objective of stabilizing prices and will use it to support economic activity and the labor market, but also to avoid possible inflation spirals.

The Fed, the United States and their inflation

The growth of inflation is being a great concern for consumers who see the way in which their purchasing power decreases little by little.

Food such as meat, eggs and fish had a greater rise than other products, and on the fuel side, gasoline prices have reached maximum figures in recent years.

The Inflation is in full acceleration while the economy is recovering from the consequences of covid-19, people’s consumption is growing and bottlenecks in supply chains continue, which has its effects on the normal flow of products throughout the world.

It was recognized by the president of the United States, Joe Biden, who has ensured that reducing inflation is a main priority.

Various factors

One of the elements that contributed to the sustained growth of prices is l in the absence of employees, a situation that caused wages to rise in different sectors of the economy.

In an interview with the BBC Mundo, Elijah Oliveros-Rosen, economist at the consultancy Standard & Poor’s , noted that the inflationary blow has impacted the prices of energy-related products, in addition to obstacles in the normal flow of products in the world and the high price of homes.

He added that it is possible that energy values ​​will continue to rise in the following months, although at the same time, the impact of bottlenecks in supply chains would have to decrease.

Fill in a Average fuel tank before the pandemic cost $ 23 and now costs $ 30. And so many examples linked to price increases.

On the other hand, retailers are no longer absorbing the increases, such as they did at the beginning. In this way, any change in input values ​​is transferred to prices.

The Fed and the consequences of inflation

By the Aside from the consequences, beyond increasing the cost of living for people and making companies more expensive to operate, high inflation puts pressure on the Federal Reserve to increase the interest rate earlier than expected.

The equivalent of the US central bank, which is in charge of the monetary policies of the largest economy on the planet, announced an increase in the cost of money for 2022. In parallel, it has begun a progressive reduction of its millionaire plan of purchase of bonds materialized to support the economy after the health crisis.

Analysts understand that, due to the pressure of inflation, the Fed should advance the increase in rates, a strategy that will directly influence all financial markets and the economy of the globe.

For now no changes have been announced: the Fed’s objective is to approach inflation close to 2 percent at some point.

This shows that so far the Fed understands that inflationary pressure is “transitory ”, Which justifies its decision not to advance a rate hike.

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