Daily Column – 1st December 2021

In testimony before the Senate yesterday, Federal Reserve Chairman Jerome Powell stated that it was past time to stop using the term “transitory” to describe the present inflation dynamics in the United States.

This is the background: Powell has been leading Team Transitory since May, when due to the disruption in supply chain caused due to the COVID-19 pandemic prompted a spike in the pricing of commodities such as used vehicles. Powell and other officials claimed that once the kinks in the economic recovery were sorted out, the prices of commodities would return to their usual levels.

As a result of inflation spreading to other sectors and generally outstaying its welcome, Team Transitory has been on a losing trend since then. According to Powell, “the economy is quite strong and inflationary pressures are high,” and the Fed may consider speeding the wind-down of its Covid stimulus measures at its next meeting later this month, which will be held on December 1.

His remarks touched a raw nerve in a market that was already highly sensitive.

Six Flags has discontinued the Omicron variation, which retails for $70 and comes with no regulations. The S&P 500 sank 2.3 percent on Friday, rebounded 1.3 percent on Monday, and then fell 1.9 percent yesterday, evoking memories of the market’s turbulence during Covid’s early days.

Powell’s words added another another bad twist to the storey for investors, who were already anticipating that the advent of Omicron (and its possible influence on economic growth) would cause the Federal Reserve to postpone its decision to raise interest rates in the summer of 2018. However, according to Powell’s statement yesterday, combating inflation is his top priority—which means that rate hikes to calm the economy could come just in time for the summer cooling season.

So, what is the economic ramifications of Omicron’s existence? Powell, like everyone else, is waiting for further research on the effectiveness of vaccines before making a definitive statement. However, he stated that the impact of Omicron on the economy will be “remotely comparable” to the devastation of spring 2020, which demonstrates why he is remaining laser-focused on combatting inflation in the meantime. Powell acknowledged that there are some “downside risks” to employment and economic activity, but he did not elaborate.

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