U.S. Fed, Treasury officials to grill over high inflation

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U.S. Fed, Treasury officials to grill over high inflation

Nov 30 Reuters -- U.S. lawmakers are expected to grill the heads of the Federal Reserve and Treasury Department on Tuesday 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 talk about the economic recovery from the COVID-19 Pandemic. They will appear before the House of Representatives Financial Services Committee on Wednesday.

Both released their prepared testimony late Monday, with Powell projected 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.

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 with inflation at a 31 year high and the Fed's preferred measure of price pressure more than double its 2% goal.

The U.S. unemployment is 4.6% and businesses have more than 5 million people on their collective payrolls than they did before the epidemic.

The Fed is on track to taper its $120 billion in monthly purchases of Treasuries and mortgage-backed securities by June of next year, and it is currently on pace to reduce its support for the economy. The program was introduced in early 2020 to help the economy through the epidemic.

With the costs of everyday items like food, gas and rent rising quickly, Fed officials indicated that they could speed up the taper to give more scope for an earlier interest rate lift-off next year if required, according to the minutes at: 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 last week. The topic is on the agenda for the Fed's policy meeting on December 14 -- 15.

The recent comments from officials has prompted analysts to place rising bets that the Fed could raise rates as early as mid- 2022, according to analysts.

Goldman Sachs said in a note to clients that there was a risk that the timeline for the tapering of the central bank's asset purchases would be accelerated.

Powell did not mention taper in his prepared remarks, but his comments on the variant show he is worried about the economy slowing and the potential for further inflation pressure, a difficult situation that would pull the Fed policy in the opposite direction.

Sam Bullard, senior economist at Wells Fargo, said that the new COVID variant could complicate any plans to accelerate the taper at the December meeting.

Health officials are racing to determine how transmissible and deadly the new variant is, and how current vaccines remain protective. The travel ban has been imposed by the United States on some southern African nations where the strain is prevalent.

The Delta variant of COVID 19 has hurt the U.S. economy over the summer, slowing employment gains amid workers' fears of contracting the disease and exacerbating supply chain snags that have driven up inflation.

It is difficult to predict the persistence and effects of supply constraints, but it appears that factors pushing inflation upward will linger well into next year, Powell said in his prepared remarks.

He said that the rise in COVID 19 cases and the introduction of the new Omicron variant could reduce people's willingness to work in person, which would slow progress in the labor market and increase supply-chain disruptions.