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 discuss 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 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.
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 currently at 4.6% and businesses have more than 5 million fewer people on their collective payrolls than they did before the epidemic.
The Fed is on track to fully taper its $120 billion in monthly purchases of Treasuries and mortgage-backed securities by June of next year, and is on pace to reduce its support for the economy this month. The program was introduced in early 2020 to help the economy through the Pandemic.
The minutes of the minutes show that the Fed officials indicated that the taper could speed up the pace of the taper to give more scope for an earlier interest rate lift-off next year, because of the rising costs of everyday items like food, gas and rent. 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 at the Fed's December 14 -- 15 policy meeting.
That and other 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 significant 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 suggest that he is worried about the economy slowing and the potential for inflation pressure, a difficult situation that would tug 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 trying to determine how transmissible and deadly the new variant is and how effective the vaccine is, and to what extent 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 slowed the U.S. economy over the summer, slowing employment gains because workers' fears of contracting the disease and exacerbating supply chain snags that have driven up inflation.
Powell said that factors pushing inflation upward will linger well into next year, although it is difficult to predict the persistence and effects of supply constraints.
Concerns 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.