The Omicron variant of the coronavirus threatens to spike inflation in the United States, putting further pressure on supply chains and exacerbating labor shortages, Cleveland Federal Reserve Bank President Loretta Mester told the Financial Times.
“If this turns out to be a bad option, it could exacerbate the upward price pressure we are seeing due to supply chain problems,” Mester told the newspaper in an interview on Thursday.
“Fear of the virus continues to be one of the factors deterring people from re-entering the labor market,” Mester said, adding that there is a risk that if the new option were more dangerous than Delta, people who have lost or abandoned during a pandemic, their work will stay at home.
Earlier this week, Federal Reserve Chairman Jerome Powell said the US central bank should be prepared to respond to the possibility that inflation will not fall in the second half of next year, as most forecasters currently expect.
“We have to consider the risk that these persistently high inflation rates could become more entrenched,” Mester said. “It’s about giving us the opportunity … to follow the trajectory of interest rates.”
Mester added that she said she would support at least one rate hike next year and that two might be “appropriate.”
However, the economy is better at coping with these options, she said, adding that the side effects on the demand side have diminished, but the side effects on the supply side remain.
Mester will vote on the Fed’s policy making committee in 2022.