The Omicron variant of the coronavirus comes at a challenging moment for the Federal Reserve, as officials try to pivot from containing the pandemic’s economic fallout toward addressing worryingly persistent inflation.
The central bank has spent the past two years trying to support a still-incomplete labor market recovery, keeping interest rates at rock bottom and buying trillions of dollars’ worth of government-backed bonds since March 2020. But now that inflation has shot higher, and as price gains increasingly threaten to remain too quick for comfort, its policymakers are having to balance their efforts to support the economy with the need to keep price trends from leaping out of control.
That newfound focus on inflation may limit the central bank’s ability to cushion any blow Omicron might deal to America’s growth and the labor market. And in an unexpected twist, the new variant could even speed up the Fed’s withdrawal of economic support if it intensifies the factors that are causing inflation to run at its fastest pace in 31 years.
“In every one of the previous waves of the virus, the Fed was able to react by effectively focusing on downside risks to growth, and trying to mitigate them,” said Aneta Markowska, chief financial economist at Jefferies. “They’re no longer able to do that, because of inflation.”
said in an interview last week.
The Status of U.S. Jobs
The pandemic continues to impact the U.S. economy in a multitude of ways. One key factor to keep an eye on is the job market and how it changes as the economic recovery moves forward.
Janet L. Yellen, the Treasury secretary and a former Fed chair, made similar remarks at an event on Thursday.
“The pandemic could be with us for quite some time and, hopefully, not completely stifling economic activity but affecting our behavior in ways that contribute to inflation,” she said of the new variant.
during congressional testimony last week. “I think the risk of higher inflation has increased.”
What to Know About Inflation in the U.S.
Fed officials initially expected a 2021 price pop to fade quickly as supply chains unsnarled and factories worked through backlogs. Instead, inflation has been climbing at its fastest pace in more than three decades, and fresh data set for release on Friday are expected to show that the ascent continued as a broad swath of products — like streaming services, rental housing and food — had higher prices.
Given that, Mr. Powell and his colleagues have pivoted to inflation-fighting mode, trying to ensure that they are poised to respond decisively should price pressures persist.
Mr. Powell said last week that officials would discuss speeding up their plans to taper off their bond-buying program — prompting many economists to expect them to announce a plan after their December meeting that would allow them to stop buying bonds by mid-March. The Fed announced early in November that it would slow purchases from $120 billion a month, making the possible acceleration a notable change.
Ending bond-buying early would put officials in a position to raise their policy interest rate, which is their more traditional and more powerful tool.
nearly four million people are still missing from the labor market compared with just before the pandemic began. Some have most likely retired, but surveys and anecdotes suggest that many are lingering on the sidelines because they lack adequate child care or are afraid of contracting or passing along the coronavirus.
If the Fed begins to remove its support for the economy, slowing business expansion and hiring, the labor market could rebound more slowly and haltingly when and if those factors fade.
But the balancing act is different from what it was in previous business cycles. The factors keeping employees on the sidelines right now are mostly unrelated to labor demand, the side of the equation that the Fed can influence. Employers appear desperate to hire, and job openings have shot up. People are leaving their jobs at historically high rates, such a trend that job-quitting TikTok videos have become a cultural phenomenon.
In fact, the at-least-temporarily-tight labor market is one reason inflation might last. As they compete for workers and as employees demand more pay to keep up with ballooning consumption costs, companies are raising wages rapidly. The Employment Cost Index, which the Fed watches closely because it is less affected by many of the pandemic-tied problems that have muddied other wage gauges, rose sharply in its latest reading — catching policymakers’ attention.
If companies continue to increase pay, they may raise prices to cover their costs. That could keep inflation high, and anecdotal signs that such a trend is developing have already cropped up in the Fed’s survey of regional business contacts, called the Beige Book.
“Several contacts mentioned that labor costs were already being passed along to consumers with little resistance, while others said plans were underway to do so,” the Federal Reserve Bank of Atlanta reported in the latest edition, released last week.
Still, some believe that inflation will fade headed into 2022 as the world adjusts to changing shopping patterns or as holiday demand that has run up against constrained supply fades. That could leave the Fed with room to be patient on rate increases, even if it has positioned itself to be nimble.
Lifting rates “before those people come back is a little bit like throwing in the towel,” Ms. Markowska said. “I have a hard time believing that the Fed would throw in the towel that easily.”
>>> Don’t Miss Today’s BEST Amazon Deals! <<<<
MOSCOW — As European governments threatened Belarus with deeper sanctions this week for fomenting the migration crisis on the Belarusian-Polish border, its bombastic leader countered with what sounded like a trump card: he could stop the flow of gas to the West.
There was just one problem: It wasn’t his gas to stop.
So on Friday, Russia — which sends much of its gas to Europe via Belarus — had to set the record straight for the Belarusian president, Aleksandr G. Lukashenko.
“Russia was, is and will remain a country that fulfills all of its obligations in supplying European customers with gas,” the spokesman for President Vladimir V. Putin told reporters.
With thousands of migrants still stranded in the frigid cold on the edge of the European Union — encouraged by Belarus to go there but barred by Poland, an E.U. member, from crossing its border — the complex relationship between two allied autocrats looms large over the crisis. The mixed messaging over Russia’s natural gas exports was the latest sign that even as Mr. Putin continues to back Mr. Lukashenko, it is the Belarusian leader — a strongman who once ran a Soviet collective farm — who keeps raising the stakes.
the forced landing of a European passenger jet with a Belarusian dissident on board, Mr. Lukashenko seemed to have no choice but to bow to his Kremlin benefactors and to assent to deeper integration with them.
suggested they were ready to “start a conflict.”
several airlines on Friday said they were limiting flights to Belarus from the Middle East, where most of the migrants have traveled from. They include Turkish Airlines, one of the largest carriers to offer flights to Minsk, the Belarusian capital.
At the same time, aid groups described dire conditions for migrants huddled at the border, struggling against the cold and threats of violence. One Iraqi couple and a Syrian man were beaten and robbed, according to the activist coalition Grupa Granica.
The migration crisis comes amid the backdrop of rising tensions between Russia and Belarus’s southern neighbor, Ukraine — a onetime Russian ally that broke away in its pro-Western revolution in 2014. Ukraine’s turn looms large for Moscow, a cautionary tale that the Kremlin is determined not to repeat.
Understand the Belarus-Poland Border Crisis
Card 1 of 6
A migrant crisis. Gatherings of migrants along the European Union’s eastern border have led to an escalating standoff between Belarus and the E.U. Here’s what to know:
“Putin took Crimea, which is very good, but Putin lost Ukraine,” Mr. Markov, the pro-Kremlin analyst, said. “If he also loses Belarus, he will never be forgiven for it.”
Mr. Lukashenko has ruled Belarus since 1994, and for years profited from the competition between Russia and the West for influence in his country, provoking deep frustration in Moscow. That game ended last year, when he declared a landslide re-election victory in a vote widely seen as fraudulent, leading the E.U. to impose sanctions that continue to rankle him.
With Mr. Lukashenko’s opponents seen as too pro-Western, the Kremlin backed him despite its reservations — saving Mr. Lukashenko’s regime but saddling Mr. Putin with an ever-more-erratic ally.
In Moscow, many expected the Kremlin’s backing to translate into tighter integration into a “union state” between Russia and Belarus that would have magnified Mr. Putin’s geopolitical sway. But those talks ended earlier this fall without an agreement on a common currency or legislature — signaling that Mr. Lukashenko was able to retain his independence.
Mr. Putin and Mr. Lukashenko, both in their late 60s, share a worldview focused on a two-faced, decadent West. Both have overseen harsh crackdowns on dissent in the last year. The 2020 uprising against Mr. Lukashenko in a neighboring, Russian-speaking country spooked the Kremlin, Russian analysts say, and helped prompt Mr. Putin’s decision to dismantle the movement of the opposition leader Aleksei A. Navalny.
Mr. Lukashenko’s approach toward migration shows how he has sought to maneuver between Russia and the West. In 2018, he boasted that his country’s border guards were significantly reducing the trafficking of migrants and drugs into the European Union. In recent months, he has swerved the other way, with Western officials saying he has orchestrated a wave of migration through the Minsk airport toward his country’s borders, hoping to embarrass the E.U. into legitimizing him.
On the ground in Minsk, the human toll of that strategy is evident.
When large numbers of asylum seekers began arriving over the summer, a rights activist in Minsk said, they came as part of organized tour groups with reservations at the Yubileyny — a hotel complex operated by the presidential administration of the Republic of Belarus.
Now, they are starting to run out of money, Alena Chekhovich, the activist in Minsk, said in a telephone interview, with some forced to sleep on the street. Others relocated to hostels in the city center, even with expired visas — another sign, Ms. Chekhovich claimed, that the Belarusian government, which typically watches closely for migration violations, was exacerbating the crisis.
Ms. Chekhovich said many migrants who make it from Minsk to the border are basically marooned in makeshift camps there, monitored by Belarusian border guards who prevent them from returning.
“It’s sad that people are ending up in this situation simply because of the actions of the state,” she said.
Oleg Matsnev contributed reporting from Moscow, and Monika Pronczuk from Brussels.
>>> Don’t Miss Today’s BEST Amazon Deals! <<<<