The Chairman of the Federal Reserve testifies during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act at the Hart Senate Office Building in Washington, DC, on September 28, 2021.
The Federal Reserve Chairman believes that the omicron variant of Covid-19 and a recent increase in coronavirus cases pose a threat to the U.S. economy.
Powell said in remarks he plans to deliver to Senate lawmakers on Tuesday that the recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity. The labor market could be slowed and supply-chain disruptions could increase if people are worried about the virus.
Powell will testify before the Senate Banking Committee on Tuesday. The Fed chief and Treasury secretary are required to report to Congress every quarter as part of the March 2020 economic-relief legislation that magnified the central bank's emergency lending programs.
The remarkets were released by the central bank.
The Fed chief said that it was difficult to forecast the persistence and impact of supply constraints, but that it now appears that factors pushing inflation upward will linger well into next year.
He noted that many forecasters, including some at the Fed, predict that inflation will move down significantly over the next year as bulked-up supply chains overtake cooling demand for goods.
The fears over a new Covid variant drove investors to ditch U.S. stocks and push back their expectations for future Fed rate hikes. On Friday, the week's final day of trading, the blue-chip index dropped 2.5%, its worst day of the year. Markets rebounded on Monday.
Concerns about the spread and potential impact of the omicron coronaviruses variant caused traders to flock to the relative safety of Treasury bonds and reduce their forecast for future Fed rate hikes.
According to the FedWatch tool, 25% of investors think the Fed will keep interest rates at zero in June of 2022, with 75% of them believing the central would hike at least once by then. Thanks to the new variant, some 35% of investors now think the Fed will keep rates at zero in June 2022.
The yield on the 10-year Treasury note fell 15 basis points on Friday before bouncing back on Monday. Bond yields fall when prices go up.
