As Omicron Threat Looms, Inflation Limits Fed’s Room to Maneuver
The New York Times
The central bank has spent years guarding against economic blows. Now it is in inflation-fighting mode, even as a potential risk emerges.
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.
