Top line

Federal Reserve Chairman Jerome Powell changed his tone on inflation Tuesday, warning the Senate that the new Omicron variant could lead to higher prices well into next year and further complicate America’s economic recovery.

Important facts

“The risk of persistently higher inflation has grown”, Powell admitted due to the emergence of the Omicron variant in a statement to the Senate Banking Committee, whereby the Federal Reserve now sees that prices will continue “well into next year” .

Omicron also carries “downside risks to employment and activity,” not to mention “increased uncertainty about inflation,” added Powell.

The Fed chairman also noted that despite the Omikron threat, the central bank would discuss accelerating the throttling of its pandemic bond-buying program at an upcoming meeting in December.

The stock market hit session lows immediately after his comments, with the Dow falling nearly 600 points, or 1.6%.

Although the economy and labor market continue to improve, greater concerns about the virus and a further surge in cases would hamper progress and “exacerbate” supply chain disruptions, Powell warned.

While the Fed chairman has often repeated his mantra in the past that higher inflation is “temporary,” he omitted that word, especially in his comments on Tuesday – which marks a tone shift.