Federal Reserve Chair Jerome Powell said that the Omicron coronavirus variant strain will cause uncertainty about economic growth and inflation in the coming months.

Last week, the Personal Consumption Expenditures Price Index — the Fed’s preferred inflation metric — reached its highest level since 1991. Though the central bank was poised to hike interest rates in the near future, the new variant could be producing hesitancy among monetary policy officials.

Powell, acknowledging that the inflation rate is running “well above” the Fed’s 2% long-run target, told members of the Senate Banking Committee:

Most forecasters, including at the Fed, continue to expect that inflation will move down significantly over the next year as supply and demand imbalances abate. 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. In addition, with the rapid improvement in the labor market, slack is diminishing, and wages are rising at a brisk pace.

We understand that high inflation imposes significant burdens, especially on those less able to meet the higher costs of essentials like food, housing, and transportation. We are committed to our price-stability goal. We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.

The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.

Earlier this month — after nearly two years of aggressive monetary stimulus following COVID-19 and the lockdown-induced recession — the Fed announced plans to taper its $120 billion in monthly bond purchases by $15 billion in both November and December.

More recently, President Biden tapped Powell to serve a second term as Federal Reserve chair. 

“When our country was hemorrhaging jobs last year and there was panic in our financial markets, Jay’s steady and decisive leadership helped to stabilize markets and put our economy on track to a robust recovery,” Biden said.

“Jay is a believer in the benefits of what economists call ‘maximum employment.’ That’s an economy where companies have to compete to attract workers instead of workers competing with each other for jobs, where American workers get steady wage increases after decades of stagnation, and where the benefits of economic growth are broadly shared by everyone in the country, not just concentrated for those at the top.”

Originally nominated to his current post by President Trump in 2018, Powell has led the central bank through one of the most ambitious quantitative easing regimes in American history — a reality which many economists point to as a primary source for high inflation.

Powell’s tenure has also been marked by an ethics review following revelations that many Fed officials made large trades amid the recession. Federal Reserve Bank of Dallas President Robert Kaplan made multimillion-dollar deals involving shares of Apple, Amazon, Boeing, and Facebook; Richmond Fed President Thomas Barkin and Boston Fed President Eric Rosengren also maintained significant financial assets, with the latter holding shares of Pfizer, AT&T, and Chevron.

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