Jerome Powell said that inflation will ease in the coming years. However, the risk of the emergence of an Omicron variant could cloud the prospects for the future.
Federal Reserve Chairman Jerome Powell said that high inflation will recede in the next few years as supply and demand become more balanced. This is also supported by the tapering program that has been run by the Fed. Even so, Powell also warned that the Omicron COVID variant could cloud future prospects.
"It is difficult to predict with certainty what the rate of inflation and the effects of global supply bottlenecks will be, but I believe the factors driving inflation upwards will persist into 2022," Powell said in testimony to be presented before the US Senate Banking Committee.
Powell then alluded to the highly vulnerable labor market over the deployment of this Omicron variant. In addition, the risk of hampering economic activity cannot be ruled out as it will undermine the recovery that has been running quite solidly since the beginning of the year.
In his statement, Powell did not provide any hints regarding the tapering program that began this month. Powell implied that the US labor market is currently "ground to cover" before it reaches maximum employment, which is one of the conditions before the Fed raises interest rates.
US Dollar Calm, Set To Strengthen Further
Until Tuesday's Asian trading session, the movement of the US Dollar tends to be calm after the high volatility at the end of last week. The dollar did not move much, especially versus commodity currencies, as can be seen from the AUD/USD pair which is currently stuck in a consolidation phase. Meanwhile, the US Dollar Index (DXY) has been trading in a narrow range for the past two days, and is currently hovering around 96.12.
The US dollar has the potential to resume its bullish trend, referring to CFTC data which shows the Net Long USD position increased to a record high since mid-October. That means, the majority of market participants are still bullish on the dollar.
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