Powell: "Inflation Will Decline Next Year... Omicron Is a Variable" (Update)

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), predicted that the inflation rate will come close to the Fed’s target of 2% by the end of next year, but he also noted that risks from the Omicron variant remain.

After the Federal Open Market Committee (FOMC) regular meeting on the 15th (local time), Chairman Powell said at a press conference, "The Fed will use all available tools to prevent high inflation from becoming entrenched." He pointed out the risk that inflation could continue to rise next year and expressed concern that the value of some assets is "somewhat high."

At the FOMC meeting that day, Powell, who decided to double the pace of asset purchase tapering, explained, "Basically, the high inflationary pressures and the much faster improvement in the labor market are the reasons."

He emphasized, "The U.S. economy does not need more policy support," explaining the background for the decision to end tapering early.

Powell expressed confidence by mentioning the recent easing of unemployment, saying, "The U.S. economy is rapidly moving toward maximum employment." He also evaluated that although the unemployment rate has fallen, the labor force participation rate still falls short of expectations.

Regarding the overall outlook for the U.S. economy, he said, "Economic activity is expanding at a vigorous pace this year," and forecasted that strong growth will be maintained despite high inflation levels.

He expressed concern that Omicron could pose a threat to the economic recovery process. Powell said, "There is a lot of uncertainty. The reason we called it a 'risk' in the FOMC statement is precisely because of this."

During the Q&A session, Powell also predicted that Omicron would not affect tapering but could impact demand more than supply.

When asked when he decided to shift to tightening monetary policy, he said, "I watched employment and inflation conditions, but I made up my mind after seeing the Consumer Price Index (CPI)." The November CPI rose 6.8%, marking the highest level in 42 years.

Powell stated that the post-COVID-19 economy will be significantly different from before, judging that the economic situation will clearly differ from the past.

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