Powell, Yellen head to Congress as inflation, variant risks rise
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[November 30, 2021] By
Lindsay Dunsmuir
(Reuters) -U.S. lawmakers on Tuesday are
expected to grill the heads of the Federal Reserve and Treasury
Department over stubbornly high inflation and the possible impact of the
new Omicron COVID-19 variant on what both officials view as a strong
economy.
Fed Chair Jerome Powell and Treasury Secretary Janet Yellen are due to
testify before the U.S. Senate Banking Committee at 10 a.m. EST (1500
GMT) to discuss the economic recovery from the COVID-19 pandemic. They
will also appear before the House of Representatives Financial Services
Committee on Wednesday.
Both released their prepared testimony late Monday, with Powell
projecting 5% growth this year but noting the new variant poses downside
risks to economic activity and jobs and raises uncertainty around
inflation.
Yellen warned lawmakers that failure to deal with the debt limit would
"eviscerate" the recovery.
With inflation at a 31-year high and the Fed's preferred measure of
price pressures more than double its 2% goal, the U.S. central bank's
promise to keep its benchmark overnight interest rate near zero until
the labor market is fully healed is under threat.
![](http://archives.lincolndailynews.com/2021/Nov/30/images/ads/current/sirrennatea_sda_HFH_2021.png)
U.S. unemployment currently stands at 4.6% and businesses have nearly 5
million fewer people on their collective payrolls than they did
pre-pandemic.
The Fed this month began to reduce its support for the economy, and is
currently on pace to fully taper its $120 billion in monthly purchases
of Treasuries and mortgage-backed securities by next June. The program
was introduced in early 2020 to help nurse the economy through the
pandemic.
With costs of everyday items like food, gas and rent rising quickly, Fed
officials have indicated they could speed up the pace of the taper to
give more scope for an earlier interest rate lift-off next year if
required, according to the minutes https://www.reuters.com/markets/us/with-feds-powell-renominated-focus-turns-speed-bond-buying-taper-2021-11-24
of the central bank's last policy meeting published last week. The topic
is on the agenda for the Fed's Dec. 14-15 policy meeting.
That and other recent comments from officials have prompted analysts to
place rising bets that the Fed could now raise rates as early as
mid-2022.
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![](../images/113021pics/busine70.jpg)
Federal Reserve Chairman Jerome Powell testifies before a Senate
Banking, Housing and Urban Affairs Committee hearing on Capitol Hill
in Washington, U.S., July 15, 2021. REUTERS/Kevin Lamarque/File
Photo
![](http://archives.lincolndailynews.com/2021/Nov/30/images/ads/current/eaton_lda_HFH_2021.png)
Goldman Sachs, in a note to clients, said there was "a significant risk" the
timeline for the tapering of the central bank's asset purchases would be
accelerated.
In his prepared remarks Powell did not mention taper at all, but his comments on
the variant suggest he is worried both about the economy slowing and the
potential for further inflation pressure, a difficult situation that would tug
Fed policy in opposite directions.
"The new COVID variant could complicate any plans to accelerate the taper at the
December meeting, which is the direction momentum was heading ahead of the
variant discovery," said Sam Bullard, senior economist at Wells Fargo.
NEW VARIANT
Health officials are racing to determine how transmissible and deadly the new
variant is and to what extent current vaccines remain protective. The United
States has imposed a travel ban on some southern African nations where the
strain is prevalent.
The now-dominant Delta variant of COVID-19 dented the U.S. economy over the
summer, slowing employment gains amid workers' fears of contracting the virus
and exacerbating supply chain snags that have driven up inflation.
"It is difficult to predict the persistence and effects of supply constraints,
but it now appears that factors pushing inflation upward will linger well into
next year," Powell said in his prepared remarks.
Concern about the recent rise in COVID-19 cases and the emergence of the new
Omicron variant, he said, "could reduce people's willingness to work in person,
which would slow progress in the labor market and intensify supply-chain
disruptions."
(Reporting by Lindsay Dunsmuir and Ann Saphir; Editing by Paul Simao and Richard
Pullin)
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