The Omicron coronavirus variant threatens to fuel soaring inflation in the United States by further pressuring supply chains and worsening worker shortages, Cleveland Federal Reserve Bank President Loretta Mester told the Financial Times.
“If it turns out to be a bad variant it could exacerbate the upward price pressures we’ve seen from the supply-chain problems,” Mester told the paper in an interview on Thursday.
“The fear of the virus is still one of the factors holding people back from re-entering the labour force,” Mester said, adding that there was a risk that if the new variant were more virulent than Delta the people who have lost or quit their jobs during the pandemic would continue to stay at home.
Earlier this week, Federal Reserve Chair Jerome Powell said that the U.S. central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of next year as most forecasters currently expect.
“We have to entertain the risk that those persistently high numbers of inflation could become more embedded,” Mester said. “It’s really about giving us the optionality … to make moves on the interest rate path.”
Mester added that said she would support at least one rate increase next year, and that two might be “appropriate.”
Still, the economy is better at dealing with these variants, she said, adding that demand side effects have eased, but supply side effects remain.
Mester will have a vote on the Fed’s policy-setting committee in 2022.