The Omicron variant of Covid-19 can slow global economic growth by exacerbating supply chain problems and depressing demand, US Treasury Secretary Janet Yellen told the Reuters Next conference on Thursday.
Yellen cited a great deal of uncertainty about the impact of the new variant, first detected in South Africa, given the severe US economic slowdown caused by the emergence of the Delta variant of Covid-19 earlier this year.
“Hopefully it is not something that is going to slow economic growth significantly,” Yellen said, adding, “there is a lot of uncertainty, but it could cause significant problems. We’re still evaluating that.”
Yellen said the new strain of the coronavirus could exacerbate supply chain problems and boost inflation, but it could also depress demand and cause slower growth, which would ease some of the inflationary pressures.
The former head of the Federal Reserve told the virtual global conference that she is ready to retire the word “transitory” to describe the current state of inflation plaguing the US recovery from the Covid-19 pandemic, echoing comments from Fed Chair Jerome Powell earlier this week.
“I am ready to retire the word transitory. I can agree that that has not been an apt description of what we are dealing with,” Yellen said.
Powell told lawmakers this week the word meant different things to different people, sowing some confusion, and it was a good time to explain more clearly what was meant.
Yellen insisted that stimulus spending by the Biden administration early this year was not the major driver boosting consumer prices, which hit 31-year highs in October and are running at more than twice the Fed’s flexible inflation target of 2% annually. She blamed the surging prices mainly on supply chain issues and a mismatch between supply and demand.
Yellen said the $1.9 trillion American Rescue Plan passed by Congress earlier this year had helped vulnerable Americans get through the worst of the pandemic and fueled the strong US economy.
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While it may have contributed to inflation “somewhat,” she said the surge was largely due to the pandemic and the massive shift in consumption towards goods and away from services.
She said the Fed should keep a close eye on rising wages to avoid the kind of damaging and long-lasting “wage-price spiral” seen in the 1970s.
Yellen, who led the Fed from 2014 to 2018, said it was up to the US central bank to decide what to do about interest rates, but noted that a strong US economy, which would likely prompt rate hikes, is generally a good thing for the rest of the world.
President Joe Biden’s administration is working closely with the private sector to curb price increases, Yellen said, citing efforts to accelerate the loading of containers at ports and encourage domestic production of semiconductors.
She said lowering Trump-era tariffs on imported goods from China through a revived exclusion process could help ease some inflationary pressures, but would not be a “game-changer.”
Published in The Express Tribune, December 3rd, 2021.
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