Omicron Shakes US Tightening Policy

Expanded to 17 Countries
"Tapering Response Could Harm Economic Growth and Employment... Interest Rate Hike Speed Becomes Difficult"

Jerome Powell, Chair of the U.S. Federal Reserve (Fed)
[Photo by AP]

[Asia Economy New York=Correspondent Baek Jong-min, Reporter Cho Hyun-ui] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), expressed concerns that the Omicron COVID-19 variant could negatively impact the economy, raising expectations that the timetable for monetary policy normalization might change. Reflecting the Fed's concerns, the number of countries where Omicron has been detected has increased to 17.

◆Omicron Shakes Fed's Tightening Timetable? = Full employment and price stability are the Fed's monetary policy goals. Chairman Powell's remarks on the 29th (local time) served as a warning that Omicron could disrupt these goals.

Following Powell's comments, The New York Times (NYT) analyzed that the Fed has begun tapering (reducing asset purchases) by $120 billion per month as part of its COVID-19 response and is expecting interest rate hikes, but Omicron could complicate the timing and pace of these rate increases.

NYT reminded that if inflation rises further due to Omicron and the Fed responds with tapering and rate hikes, the inflation containment goal can be achieved, but adverse effects on economic growth and employment are inevitable.

A major foreign news outlet also reported that although Powell announced his reappointment and signaled a response to inflation, the situation has changed due to Omicron. The outlet diagnosed that Omicron has injected greater uncertainty into the Fed's policy path.

Unlike Chairman Powell, economic operators such as President Joe Biden and Treasury Secretary Janet Yellen mentioned that the impact of Omicron is limited. Secretary Yellen argued that although the economic situation is intertwined with COVID-19 responses, the U.S. recovery remains strong despite Omicron's emergence.

The market is betting on a delay in U.S. interest rate hikes. After Powell's remarks, U.S. Treasury yields fell across the board. The Chicago Mercantile Exchange (CME) FedWatch tool indicated a 41.2% probability that the Fed will maintain zero interest rates through June next year. A week earlier, FedWatch estimated the probability of maintaining zero rates in June at 23.4%. The market now expects the first rate hike in September rather than June.

[Image source=AP Yonhap News]

◆Number of Countries with Omicron Cases Rises to 17 = According to NYT, as of this date, the countries where the Omicron variant has been confirmed include South Africa, Botswana, the United Kingdom, Germany, Italy, the Czech Republic, Austria, Belgium, Australia, Israel, Hong Kong, the Netherlands, Denmark, Canada, Portugal, Spain, and Sweden, totaling 17 countries. Suspected cases have also been reported in Japan, France, and Brazil, and if all are confirmed as variants, the number will rise to over 20 countries.

The health ministers of the Group of Seven (G7) issued a statement after an emergency meeting, emphasizing that the Omicron variant appears to have high transmissibility and urgent action is needed. The World Health Organization (WHO) stated that "the overall global risk associated with the new variant of concern, Omicron, is assessed as very high."

In Europe, where Omicron is spreading rapidly, cluster infections have been confirmed. In Portugal, 13 players and staff members of the professional soccer team Belenenses were collectively infected with Omicron. Among the infected players, one recently traveled to South Africa, so health authorities are investigating with the possibility of secondary infections in mind.

Spain and Sweden reported their first infections. In a hospital in Madrid, Spain's capital, one traveler arriving from South Africa tested positive, and in Sweden, one traveler who entered from South Africa a week ago was confirmed positive.

The South African expert who first alerted health authorities to the presence of the Omicron variant stated that infected patients exhibited only mild coughing symptoms, but since the number of observed patients is small, the severity of symptoms and the effectiveness of existing vaccines have not yet been confirmed.

However, concerns have been raised that children under two years old may be relatively vulnerable. In a hospital in the Tshwane region of South Africa, the epicenter, 10% of recent COVID-19 hospitalizations were children under two years old.

This content was produced with the assistance of AI translation services.