Coronavirus Omicron Variant

More stories

  • 150 Shares199 Views

    in Economy

    Omicron Is an Economic Threat, but Inflation Is Worse, Central Bankers Say

    by

    Within 24 hours, the Federal Reserve, Bank of England and European Central Bank all stepped forward to deal with price increases.There is still a lot scientists do not know about Omicron. There is cautious optimism — but no certainty — about the effectiveness of vaccines against this fast-spreading variant of the coronavirus, and experts do not fully understand what it means for public health or the economy.But central banks have concluded they don’t have the luxury of waiting to find out.Facing surging inflation, three of the world’s most influential central banks — the Federal Reserve, Bank of England and European Central Bank — took decisive steps within 24 hours of each other to look past Omicron’s economic uncertainty. On Thursday, Britain’s central bank unexpectedly raised interest rates for the first time in more than three years as a way to curb inflation that has reached a 10-year high. The eurozone’s central bank confirmed it would stop purchases under a bond-buying program in March. The day before, the Fed projected three interest rate increases next year and said it would accelerate the wind down its own bond-buying program.The perception that the Bank of England would “view the outbreak of the Omicron variant with greater concern than it actually did” caused the surprise in financial markets, ” Philip Shaw, an economist at Investec in London, wrote in a note to clients. The Fed also “carried on regardless” with its tightening plans, he added.Aside from Omicron, the central banks were running out of reasons to continue emergency levels of monetary stimulus designed to keep money flowing through financial markets and to keep lending to businesses and households robust throughout the pandemic. The drastic measures of the past two years had done the job — and then some: Inflation is at a nearly 40-year high in the United States; in the eurozone it is the highest since records began in 1997; and price rises in Britain have consistently exceeded expectations.It is still unknown how Omicron will affect the economic recovery. Vaccine makers are still testing their shots against the variant.Alessandro Grassani for The New York TimesThe heads of all three central banks have separately decided that the price gains won’t be as temporary as they once thought, as supply chains take a while to untangle and energy prices pick up again.Andrew Bailey, the governor of the Bank of England, said that policymakers in Britain were seeing things that could threaten inflation in the medium-term. “So that’s why we have to act,” he said on Thursday.“We don’t know, of course, a lot about Omicron at the moment,” he added. It could slow the economy, and already there are canceled holiday parties, fewer restaurant bookings, less retail foot traffic and signs that more people are staying home. But Omicron could also worsen inflationary pressures, he said. “And that’s, I’m afraid, a very important factor for us.”Already, price gains have popped higher this year as snarled supply chains and goods shortages have raised shipping and manufacturing costs. Depending on the severity of Omicron and how governments react, the variant could cause factories to shut down and could keep supply chains in disarray and workers at home, prolonging goods and labor shortages and pushing inflation higher.At the same time, policymakers are assuming the impact on the economy will be milder than previous waves of the virus. With each surge in cases and reintroduction of restrictions, the dent to the economy has gotten smaller and smaller. This would lessen the risk that the central banks end up tightening monetary policy into a downturn.Still, it is an awkward balancing act. On the same day the Bank of England raised rates, its staff cut half a percentage point from their growth forecasts for the final three months of the year. By the end of 2021, the British economy will still be 1.5 percent smaller than its prepandemic size, the bank estimated.Christine Lagarde, the president of the European Central Bank, said Omicron had created uncertainty in the face of a strong recovery.Pool photo by Ronald Wittek“From a macroeconomic perspective, it’s unlikely that the fourth wave is going to have as meaningful an impact as we’ve seen even during last winter,” said Dean Turner, an economist at UBS Global Wealth Management.The economic recoveries from the pandemic, though bumpy, haven’t been derailed yet. Unemployment rates are falling in Europe and the United States, and businesses are complaining that is difficult to hire staff. That, combined with the burst of inflation, was enough to bolster the case for some monetary tightening.“There’s a lot of uncertainty with the new variant, and it’s not clear how big the effects would be on either inflation or growth or hiring,” Jerome H. Powell, the Fed chair, said on Wednesday. But there is a “real risk” inflation could be more persistent, he also said, which was part of the reason the bank sped up its plans to taper its bond purchases.Ending the Fed’s bond purchases sooner would give the central bank room to react to a wider range of economic outcomes next year, Mr. Powell said.“The data is pretty glaring,” Mr. Turner of UBS said of recent statistics on inflation and employment. “There’s only so much caution you can get away with,” before central banks need to take action, he said.Omicron has created uncertainty in the face of a strong recovery, Christine Lagarde, the president of the European Central Bank said on Thursday after she outlined how the bank would end its largest pandemic-era stimulus measure.Vaccine-makers are still testing their shots against Omicron and medical officials are encouraging restraint when it comes to socializing rather than implementing new lockdowns, but central bankers are marching ahead because time isn’t on their side. The effect of monetary policy decisions on the wider economy isn’t immediate.The Bank of England is forecasting that inflation will peak at 6 percent in April, three times the central bank’s target. Within such a short time frame, there is little policymakers can do to stop that from happening, but they can try to signal to businesses and unions setting wages that they will act to stop higher inflation from becoming entrenched, said Paul Mortimer-Lee, the deputy director of the National Institute of Economic and Social Research in London. This may prevent higher prices from spilling over into significantly higher wages, which could cause businesses to raise prices even more.While all three central banks are facing similar problems with high inflation and are keeping watch over wage negotiations, their future challenges are different.The Federal Reserve and Bank of England are worried about the persistence of high inflation. For the European Central Bank, inflation in the medium term is too low, not too high. It is still forecasting inflation to be below its 2 percent target in 2023 and 2024. To help reach that target in coming years, the central bank will increase the size of an older bond-buying program beginning in April, after purchases end in the larger, pandemic-era program. This is to avoid “a brutal transition,” Ms. Lagarde said.She warned against drawing strong comparisons between Britain, the United States and the eurozone economies.“Those three economies are at a completely different states of the cycle,” she said. “We are in a different universe and environment,” even though there might be some spillover effects across countries from the actions each central bank takes.Melissa Eddy More

  • 138 Shares189 Views

    in Economy

    The World Economic Forum in Davos is still happening, for now.

    by

    The World Economic Forum is planning to go ahead with its annual meeting of the global elite in Davos, Switzerland, next month, even as coronavirus cases spike around the world.“We are hopeful that Delta will be on its way down by the time of our annual meeting, and we are hoping that the Omicron wave will not be as bad as some people think,” Peter Vanham, a spokesman for the organization, said on Thursday. “But everything depends on the pandemic.”Mr. Vanham said a final decision on whether to cancel the event — which drew roughly 3,000 people before the pandemic — will be made by Jan. 6, 10 days before it is scheduled to start.For more than 50 years, the World Economic Forum has brought together luminaries from the worlds of business, politics and nonprofit organizations to the Alps for a weeklong series of lectures, panel discussions and dinners. At the event, held in an upscale ski resort town, world leaders mingle with the chief executives from many of the world’s largest companies and the top bosses of Wall Street. Thousands more gather to attend unofficial conferences, dinners and parties on the sidelines of the main meeting.The last time people gathered in Davos was in January 2020, when many executives heard about Covid-19 for the first time. Much of the world shut down roughly two months later, and the 2021 gathering was canceled.But for the past several months, the World Economic Forum, which is based in Geneva, has been making plans to proceed with its annual meeting much as it had before the pandemic. The organizers have begun transforming Davos into labyrinth of high-security event spaces that includes a conference center, several hotels and a long stretch of the town’s main street.“We’re well into the phase where our sunk costs are being made,” Mr. Vanham said. “That’s a decision in itself — to prepare fully for next month, even if that means that in two or three weeks we might be confronted with a late cancellation because of Omicron. But we are definitely full steam ahead at this point.”The event’s organizers were emboldened by the fact that the Delta variant, which had sent average daily coronavirus cases in Switzerland to their highest level of the pandemic not long ago, had crested. Omicron, which Mr. Vanham called “the X factor,” has introduced uncertainly recently. “We will know just how bad that X factor is by the end of the year,” he said.Official attendance for the January event will be reduced by a fifth, Mr. Vanham said. He added that hotels in Davos were also expecting roughly 30 to 50 percent fewer attendees than in previous years.Still, thousands of attendees are planning to attend, including the chief executives of companies like Verizon, AstraZeneca and IBM. The leaders of at least three Wall Street banks, who often speak on the forum’s main stage, are still planning to attend for now, according to executives with knowledge of their banks’ plans.Bankers, who often use the forum to network with clients, are scheduling meetings for now and postponing the decision on whether to attend or cancel until closer to Jan. 16, when the event is slated to begin.Should the event go ahead, the organizers will install stringent measures to prevent the spread of the coronavirus. All those who attend the official meeting are required to be vaccinated and have a negative PCR test within 72 hours of flying to Switzerland. Once they land in the country, they have to take another test and will only receive their credentials if they test negative.And once the meeting begins, the organizers are planning to require attendees to take PCR tests every 24 or 48 hours at one of 14 on-site testing centers. More

  • 88 Shares129 Views

    in Economy

    New Virus Restrictions in Britain Worry Businesses

    by

    “None of it’s going to be good,” an economist warns as people are likely to retreat from some aspects of social life as Covid measures tighten.LONDON — On Thursday morning, a group of 50 called to cancel their holiday party booked for that evening at Luc’s Brasserie, a French restaurant in the financial district of Britain’s capital. That same morning, a group of 21 canceled their party too, also for Thursday night.The previous night, Prime Minister Boris Johnson announced that stricter Covid measures were coming, and the impact was immediate for Darrin Jacobs, the owner of Luc’s. There had been a “multitude of cancellations,” he said.But thanks to a waiting list of reservations, he said, the restaurant was still fully booked until Christmas. And many of the canceled bookings had optimistically rescheduled their celebrations for early next year.“We won’t lose the business, we’ll just move the business on,” Mr. Jacobs said. But “it’s not easy because we’ve already bought food and moved staff around,” he said.For months, businesses across Britain have been desperately trying to maneuver around supply chain disruptions, labor shortages and rising costs as they emerged from various stages of lockdown.Offices reopened, which filled up commuter buses and trains; restaurants and pubs advertised to host holiday parties; and lines grew longer at city center coffee shops.Now, the emergence of the fast-spreading Omicron variant has unexpectedly dealt those efforts a blow. The government has revived coronavirus restrictions that are likely to weigh on hospitality and travel businesses during the critical holiday season and put a dent in the economy.Some 70 percent of British workers said they had traveled to work at least some days each week in early December, according to the Office for National Statistics.Daniel Leal/Agence France-Presse — Getty Images“I don’t know where this is going to go next week,” Mr. Jacobs said. “I think this is a tip of the iceberg-type scenario and it may get a lot worse next week and, if that’s the case, we’ll really have to scale it back.”For now, he’s still cautiously optimistic. But his business relies on people who work in nearby offices and walk to his restaurant in Leadenhall Market, especially several insurance companies. On Thursday, Mr. Jacobs heard that two large companies were closing their offices again.In England beginning Friday, face masks will be required in most indoor public places including cinemas and theaters. Starting Monday, people who can work from home should. And starting in the middle of next week, passes showing vaccination or a recent negative Covid test will be required for large events and nightclubs, Mr. Johnson announced this week. The rules will be voted on in Parliament next week. Scotland, Wales and Northern Ireland have set their own measures, which are slightly stricter.“Unless you go to a full or partial lockdown, the effect of the measures themselves will be rather small,” said Paul Mortimer-Lee, the deputy director of the National Institute of Economic and Social Research in London. “What will be hurting the economy is individuals’ responses.” People are likely to take more precautions to protect themselves from the virus, especially by socializing less.While the rules are relatively light, for some businesses this will be an unwelcome retreat.Before the Omicron variant was discovered, the British economy was losing some momentum while prices were rising rapidly, putting inflation at its highest level in nearly a decade. Gross domestic product grew 1.3 percent in the third quarter, down from 5.5 percent in the previous three months. And that growth was driven by spending on services, especially in hotels, restaurants and entertainment as the last of the major pandemic restrictions were lifted in the summer. In October, economic expansion slowed sharply, to just 0.1 percent from the previous month.Now, there are early indications that restaurant reservations are declining and Christmas parties are being canceled.Restaurants, cafes and shops primarily serving office workers were contending with the lost trade from hybrid working but had at least seen a notable return of workers. Some 70 percent of British workers said they had traveled to work at least some days each week in early December, according to the Office for National Statistics, up from about 50 percent earlier in the year, when the country was under a strict lockdown.Restaurants, bars and hotels helped propel growth as lockdowns were lifted earlier in the year. New measures have added to concerns for the coming months.Facundo Arrizabalaga/EPA, via ShutterstockSales at Pret A Manger, the coffee and sandwich chain whose shops tend to be clustered around office hubs and transport locations, only returned to prepandemic levels about two weeks ago. Now those sales are starting to slip again.“Christmas has been canceled for many City shops, restaurants, pubs and other businesses that rely on footfall from workers in nearby offices,” Catherine McGuinness, the policy chairwoman of the City of London Corporation, which governs the capital’s financial district, said in a statement.Her organization will encourage workers and businesses to follow the new rules but said the government needed to lay out a road map for lifting the restrictions again in the new year, Ms. McGuinness said.The new measures will also complicate the next steps for the Bank of England. Policymakers at the central bank had been preparing to raise interest rates in response to inflation, provided unemployment remained low. Some analysts believed an increase could come as soon as next week. But the potential for Omicron to further slow the economy makes it harder to justify tightening monetary policy.The extra uncertainty could dampen productivity and employment growth, according to Mr. Mortimer-Lee. It’s likely to make companies more cautious about hiring and investment, especially businesses that rely on face-to-face interactions, like restaurants. Also, high case numbers will keep children out of schools and parents away from their jobs.The City of London financial district. Starting next week, people who can work from home should. Henry Nicholls/Reuters“It’s those millions of individual decisions, rather than Boris Johnson’s decision, that’s going to affect the economy,” said Mr. Mortimer-Lee. “And none of it’s going to be good.”Even before the latest measures, hotels were seeing about a fifth of their corporate bookings canceled, according to UKHospitality, an industry lobby group, after the government required travelers into Britain to take a Covid test within two days of arriving, and isolate until receiving the results. Christmas bookings weren’t as strong as they traditionally are for hospitality businesses in a quarter that usually brings in about 40 percent of the industry’s annual revenue.And so, the industry is asking for relief from business rates (a type of tax on commercial properties), more grants, rent protection and an extension of the reductions on VAT, a sales tax. “Anything less would prove catastrophic,” Kate Nicholls, the chief executive of UKHospitality, said in a statement.The latest measures have been particularly disappointing for nightclubs, one of the last businesses allowed to reopen earlier this year. The Night Time Industries Association said Covid passes have been damaging to their industry in the parts of Britain where they were already in place.Michael Kill, the chief executive of the lobbying group, said businesses were experiencing a “honeymoon period” since reopening in the summer and were trying to rebuild cash reserves before the quieter months at the start of the year.“We’re now seeing some concern around cancellations and ticket purchases hesitancy,” Mr. Kill said. “These sorts of things that are leaving people in a vulnerable position, because many of them stocked up and purchased and staffed for a busy Christmas period.”The group accused the government of enacting the changes to draw attention away from public fury over accusations that the prime minister’s staff broke lockdown rules by holding an office party last Christmas.“It feels that nightclubs and bars have been thrown under the bus by the prime minister for him to save his own skin,” Mr. Kill said in a statement on Wednesday. More

  • 125 Shares179 Views

    in Economy

    As Omicron Threat Looms, Inflation Limits Fed’s Room to Maneuver

    by

    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.“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.”The Fed’s attention to price increases, even as a threat to growth looms, is a turning point.Inflation, and especially measures of it that strip out volatile food and fuel prices, had been slow for years. The Fed has two goals — achieving maximum employment and containing price increases — and quiescent inflation meant it could focus on supporting growth and bolstering the labor market, as it did during the earlier stages of the pandemic. But the sharp rise in prices this year has put the Fed’s two goals in tension as it sets policy.The Omicron variant is in its infancy, and what it will mean for public health and the economy is unclear. But if it does shut down factories and other businesses and keep workers at home, it could keep supply chains out of whack, spelling more trouble for the Fed.There is a risk that Omicron “will continue that excess demand in the areas that don’t have capacity and will stall the recovery in the areas where we actually have the capacity,” John C. Williams, the president of the Federal Reserve Bank of New York, said in an interview last week..css-1xzcza9{list-style-type:disc;padding-inline-start:1em;}.css-3btd0c{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-3btd0c{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-3btd0c strong{font-weight:600;}.css-3btd0c em{font-style:italic;}.css-1kpebx{margin:0 auto;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-family:nyt-cheltenham,georgia,’times new roman’,times,serif;font-weight:700;font-size:1.375rem;line-height:1.625rem;}@media (min-width:740px){#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-size:1.6875rem;line-height:1.875rem;}}@media (min-width:740px){.css-1kpebx{font-size:1.25rem;line-height:1.4375rem;}}.css-1gtxqqv{margin-bottom:0;}.css-1g3vlj0{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-1g3vlj0{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-1g3vlj0 strong{font-weight:600;}.css-1g3vlj0 em{font-style:italic;}.css-1g3vlj0{margin-bottom:0;margin-top:0.25rem;}.css-19zsuqr{display:block;margin-bottom:0.9375rem;}.css-12vbvwq{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;}@media (min-width:740px){.css-12vbvwq{padding:20px;width:100%;}}.css-12vbvwq:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-12vbvwq{border:none;padding:10px 0 0;border-top:2px solid #121212;}.css-12vbvwq[data-truncated] .css-rdoyk0{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-12vbvwq[data-truncated] .css-eb027h{max-height:300px;overflow:hidden;-webkit-transition:none;transition:none;}.css-12vbvwq[data-truncated] .css-5gimkt:after{content:’See more’;}.css-12vbvwq[data-truncated] .css-6mllg9{opacity:1;}.css-qjk116{margin:0 auto;overflow:hidden;}.css-qjk116 strong{font-weight:700;}.css-qjk116 em{font-style:italic;}.css-qjk116 a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;text-underline-offset:1px;-webkit-text-decoration-thickness:1px;text-decoration-thickness:1px;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:visited{color:#326891;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:hover{-webkit-text-decoration:none;text-decoration:none;}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.They made their comments just after Jerome H. Powell, the Fed chair, signaled greater concern around inflation.“Generally, the higher prices we’re seeing are related to the supply-and-demand imbalances that can be traced directly back to the pandemic and the reopening of the economy, but it’s also the case that price increases have spread much more broadly in the recent few months,” Mr. Powell said during congressional testimony last week. “I think the risk of higher inflation has increased.”.css-1xzcza9{list-style-type:disc;padding-inline-start:1em;}.css-3btd0c{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-3btd0c{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-3btd0c strong{font-weight:600;}.css-3btd0c em{font-style:italic;}.css-1kpebx{margin:0 auto;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-family:nyt-cheltenham,georgia,’times new roman’,times,serif;font-weight:700;font-size:1.375rem;line-height:1.625rem;}@media (min-width:740px){#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-size:1.6875rem;line-height:1.875rem;}}@media (min-width:740px){.css-1kpebx{font-size:1.25rem;line-height:1.4375rem;}}.css-1gtxqqv{margin-bottom:0;}.css-19zsuqr{display:block;margin-bottom:0.9375rem;}.css-12vbvwq{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;}@media (min-width:740px){.css-12vbvwq{padding:20px;width:100%;}}.css-12vbvwq:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-12vbvwq{border:none;padding:10px 0 0;border-top:2px solid #121212;}.css-12vbvwq[data-truncated] .css-rdoyk0{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-12vbvwq[data-truncated] .css-eb027h{max-height:300px;overflow:hidden;-webkit-transition:none;transition:none;}.css-12vbvwq[data-truncated] .css-5gimkt:after{content:’See more’;}.css-12vbvwq[data-truncated] .css-6mllg9{opacity:1;}.css-qjk116{margin:0 auto;overflow:hidden;}.css-qjk116 strong{font-weight:700;}.css-qjk116 em{font-style:italic;}.css-qjk116 a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;text-underline-offset:1px;-webkit-text-decoration-thickness:1px;text-decoration-thickness:1px;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:visited{color:#326891;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:hover{-webkit-text-decoration:none;text-decoration:none;}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.A faster taper “could set the stage for a rate hike at the March 15-16 meeting, although this may be too early from a labor market perspective even if the pace of improvement does remain rapid,” Jan Hatzius, chief economist at Goldman Sachs, wrote in a research note on Monday. Because he and his team think March would be premature, they expect an initial rate increase in June, though they say May is “very possible.”A coronavirus testing site in New York City this week. The newfound focus on inflation may limit the Fed’s ability to cushion any blow Omicron might deal to America’s growth and the labor market.Spencer Platt/Getty ImagesBond purchases help juice markets and keep money flowing to borrowers, so slowing them makes for less additional support each month. A higher Fed interest rate would matter even more, denting asset prices and making many types of borrowing more expensive, like car loans, mortgages and business credit. By raising borrowing costs, the Fed could cool demand, allowing supplies to catch up and lowering prices over time.Raising rates earlier would be a trade-off. Unemployment has fallen swiftly, dropping to 4.2 percent in November, but 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.” More

  • 100 Shares149 Views

    in Economy

    How Omicron Could Knock Economic Recovery Off Track

    by

    The latest zigzag in the pandemic has already curtailed travel, but its broader impact on growth and inflation isn’t likely to be known for several weeks.LONDON — This week, Marisha Wallace finally had to admit that her planned five-day ski holiday in Switzerland in mid-December was not salvageable: The Swiss government’s sudden decision to impose a 10-day quarantine on some international travelers meant she wouldn’t be able to leave her hotel or return home to London on her scheduled flight.“It’s the way of the world right now,” said Ms. Wallace, an actress and a singer. “You can’t plan anymore.”That provisional state, amplified across the world, has left the still-fragile economy in a state of suspense as spiking coronavirus infections and the new variant Omicron have popped up around the globe.“There’s no way to know how bad it will get,” said Ángel Talavera, head of European economics at Oxford Economics.The forecasting firm has sketched out three scenarios, including one that predicts no discernible effect on economic growth and one severe enough to slash next year’s in half. It will take several weeks before there is more clarity, Oxford concluded.The current round of restrictions has already reduced travel and dampened consumer confidence. A virulent, vaccine-resistant strain could send the economy into a tailspin again, while a mild one could leave health care systems unburdened and allow the recovery to get back on track.As a report released Wednesday from the Organization for Economic Cooperation and Development showed, although growth has been uneven, the world economy this year bounced back more quickly and strongly than had been anticipated. The report, compiled largely before the latest coronavirus news, nevertheless warned that growth was projected to slow: in the eurozone, to 4.3 percent next year from 5.2 percent in 2021; and in the United States, to 3.7 percent in 2022 from 5.6 percent.The organization characterized its outlook as “cautiously optimistic.” But it reiterated how much economic fortunes are inextricably tied to the coronavirus: “The economic policy priority is to get people vaccinated,” the report concluded.Travelers from South Africa being tested at the Amsterdam airport on Tuesday.Remko De Waal/Anp/Agence France-Presse — Getty ImagesIndeed, Omicron’s threat to the recovery is just the latest in a series of zigzags that the world economy has endured since the coronavirus began its march across continents last year. Hopes that an ebbing pandemic would permit daily life and commerce to return to normal have been repeatedly frustrated by the virus.Even before this latest variant was discovered, a fourth wave of infections transformed Europe into a Covid hot spot and prompted new restrictions like lockdowns in the Netherlands and Austria.During earlier outbreaks, trillions in government assistance helped quickly resuscitate the struggling U.S. and European economies. It also brought some unexpected side effects. Combined with pent-up demand, that support helped produce a shortage of labor and materials and rising inflation.Given how much debt was racked up in the past 18 months, such aid is unlikely to recur even with a sharp downturn — and neither are wholesale closures. Vaccines provide some protection, and many people say they are unwilling to go back into hibernation.People and business alike have shifted into a wait-and-see mode. “A lot of things do seem like they are on hold, like labor market or overall consumption decisions,” said Nick Bunker, director of economic research for the job site Indeed.How that will affect unemployment levels and inflation rates is unclear. Jerome H. Powell, the Federal Reserve chair, indicated on Tuesday that concern about stubborn inflation was growing. The O.E.C.D. also warned that inflation could be higher and last longer than originally anticipated.Omicron’s appearance just adds to the uncertainty, Laurence Boone, the organization’s chief economist, said in an interview.The Nativity Hotel in Bethlehem. Israel on Sunday decided to close its borders to foreign tourists after the Omicron variant was detected.Hazem Bader/Agence France-Presse — Getty Images“If it’s something we can cope with, like the virus we have so far, then it may prolong disruptions of the supply chain, and inflation could take longer to sort out,” she said. But if the new variant causes wider shutdowns and plunging confidence, she added, it could reduce the spending binge and dampen rising prices.In recent days, governments have reacted with a confusing hodgepodge of stern warnings, travel bans, mask mandates and testing rules that further cloud the economic outlook. That patchwork response combined with people’s varying tolerance for risk means that, at least in the short term, the virus’s latest swerves will have a vastly different effect depending on where you are and what you do.In France, Luna Park, an annual one-month amusement fair held in the southern city of Nice and slated to open this weekend, was called off after the government suddenly requisitioned the massive warehouse where roller coasters, shooting galleries and merry-go-rounds were being set up in order to convert the space to an emergency vaccination center.“Today I find myself trying to save my company, and I’m not sure that I can,” said Serge Paillon, park’s owner. He feared he would face huge losses, including 500,000 euros (about $566,000) he had already invested in the event, as well as refunds for tickets that had been on sale for several monthsMr. Paillon furloughed 20 employees. Another 200 festival workers who were coming from around the country to manage the 60 games and rides were told to stay home.“For a year and a half, it was already a disaster,” Mr. Paillon said. “And now it’s starting again.”Israel’s decision on Saturday to shut its borders to all foreign tourists for two weeks is likely to reduce the number of tourists in Israel and the occupied territories this December by up to 40,000, or nearly 60 percent of what was expected, according to a government estimate.Wiatt F. Bowers had to cancel his trip to Tel Aviv, the fifth time in 18 months he has had to scrap a planned trip to Israel.Agnes Lopez for The New York TimesWiatt F. Bowers, an urban planner, had planned to leave Jacksonville, Fla., for Tel Aviv on Wednesday but had to cancel — the fifth time in 18 months that he had to scrap a planned trip to Israel. He will rebook, but doesn’t know when.Foreign tourism, which brought a record 4.55 million tourists to Israel in 2019, had already nearly vanished. Between March 2020 and September 2021, nonresident foreigners were barred from entering Israel — and, by extension, the occupied territories, where entry and exit are controlled by Israel.In Bethlehem, where tourism is the main industry, income consequently fell more than 50 percent, said the mayor, Anton Salman, in a phone interview.Elias al-Arja, the chief of the Arab Hotel Association, which represents about 100 Palestinian hotels in the occupied territories, said he was concerned less about the short-term effect of the sudden travel ban than about the long-term message of unpredictability it sent to potential visitors.“The disaster isn’t the groups who canceled over the next two weeks,” Mr. al-Arja said. “How can I convince people to come to the Holy Land after we promised them that you can come, but then the government closes the border?”Reluctance to travel, though, could mean an upswing in other sectors if the new variant is not as harmful as people fear. Jessica Moulton, a senior partner at McKinsey & Company in London, said previous spending patterns during the pandemic showed that some money people would otherwise use for travel would instead be spent on dining.She estimated that the roughly $40 billion that British consumers saved on travel last summer was used for shopping and eating out.At the moment, Ms. Moulton said, “to the extent that Omicron decreases travel, which will happen as we head into Christmas, that will benefit restaurants.”Even before the latest variant was discovered, a fourth wave of infections transformed Europe into a Covid hot spot and prompted new restrictions like lockdowns in Amsterdam.Peter Dejong/Associated PressIn Switzerland, where travelers from Britain and 22 other countries must now quarantine, the effect of the policy change on hotels was immediate.“The majority of travelers from England — between 80 to 90 percent — have already canceled,” said Andreas Züllig, head of HotellerieSuisse, the Swiss hotel association.Ms. Wallace, who canceled her trip to the Cambrian Hotel in Adelboden, was one of several people who changed their reservations at the hotel after the Swiss government made its announcement on Friday, just one week before the slopes open.“This obviously has an impact on our very important winter and Christmas business,” said Anke Lock, the Cambrian’s manager, who estimated that 20 percent of the hotel’s December bookings were at risk.For now, though, most guests are watching and waiting, Ms. Lock said: “We’ve changed the bookings from guaranteed to tentative.”Extreme uncertainty about the economy may turn out to be the only certainty.Patrick Kingsley More

  • 125 Shares149 Views

    in Economy

    Biden Projects Normalcy and Optimism as Omicron Poses New Threat

    by

    The president tried to convey holiday cheer as he celebrated Hanukkah and downplayed virus concerns as the variant was detected in California.WASHINGTON — With prices rising across the economy and a new variant of the coronavirus threatening another wave of the pandemic, President Biden stepped to a White House microphone and tried to convey a sense of normalcy.“We’re looking ahead to a brighter and happier December,” Mr. Biden said on Wednesday. He ticked through a list of actions by his administration that he said would help ensure fully stocked shelves in groceries and retailers through the holidays.Asked by reporters if he was worried that the Omicron variant, which officials announced later in the day had been detected in California, would threaten that progress, the president was undeterred.“I’m an optimist,” he said.It could be a long and anxious December for many Americans, given that inflation is at its highest rate in decades, global delivery delays are limiting the availability of some products and the uncertainty of Omicron is looming over what was already a halting recovery from recession. On Wednesday, the stock market tumbled for a second consecutive session, with the S&P 500 closing down 1.2 percent after the Omicron news broke. The Nasdaq composite lost 1.8 percent.Mr. Biden, for his part, tried to reassure Americans that this holiday season would be better than the last.He stacked his day with policy pronouncements on supply chains and World AIDS Day and ended it with a White House ceremony for the fourth night of Hanukkah, a throwback to prepandemic celebrations in Washington. He stressed the positives of the national economy.His top infectious disease expert said it was OK for Americans to enjoy a glass of eggnog, unmasked, at a cocktail party this month — under certain circumstances, at least.It was the president’s latest attempt to balance the nation’s desire to return to something resembling a normal life with the bracing reality that the virus is continuing to kill nearly 1,000 Americans a day, and still disrupting economic activity.Global supply chains have been choked by the pandemic recession and recovery, leaving many Americans, Mr. Biden noted, to fear they will not be able to find the food or toys they want for their celebrations.The president said those fears would prove largely unfounded, claiming progress from his administration’s actions to clear port backlogs and ease the delivery of more goods to market at a time when Black Friday sales jumped nearly a third from the year before.He cited comments and commitments from a wide range of retail executives he met with on Monday at the White House to discuss inflation and supply issues, saying that physical and online retailers alike had assured him they were well prepared for a rush of spending.“Those shelves are going to be stocked,” Mr. Biden said.Mr. Biden also emphasized slight improvement on the price spikes that have depressed consumer confidence and his approval ratings, including increases for food, appliances and gasoline. He said his decision last week to release 50 million barrels of oil from the nation’s emergency reserves had already begun to reduce oil prices worldwide and would soon provide relief at the pump.The big dip in prices in recent days has come not from the release of reserves, coordinated with several other nations, but from fears that Omicron will once again depress driving and other demand for oil as it rips through the world economy.Businesses continue to struggle to overcome supply chain delays. According to a new index published by Flexport, a global freight forwarder, shipping times from Asia to the United States and from Asia to Europe remain at or near record highs — and double what they were in March 2019.A surge in the Omicron variant could lead to further delays, if ports and factories shutter and warehouses and trucking companies have an even harder time finding people to work. This year, China shut down some of its most active ports after small outbreaks of the virus as it sought to quickly contain its spread.Health experts have not yet determined the answers to crucial questions about how the variant might behave, including whether it might prove more adept at evading vaccines, which would in turn determine how much it might crimp growth or affect inflation. Analysts have warned in recent days that it is throwing new uncertainty into their forecasts.Researchers at BNP Paribas wrote on Wednesday that the variant presented several possible scenarios for the global economy, ranging from a relatively minor bump that passes quickly to a “significant near-term hit to economic activity.” Analysts at Moody’s wrote that “business plans to gradually return to a post-pandemic new normal are now uncertain.”Mr. Biden sided with the brighter view, telling reporters that “what we’ve seen so far does not guarantee” that the variant will worsen supply chain issues.Dr. Anthony S. Fauci, the nation’s top infectious disease expert, told reporters in an ensuing briefing at the White House that the variant was no reason for Americans who were already vaccinated and boosted to change their behaviors beyond existing guidance from federal officials. Asked if Americans should feel free to attend holiday parties and drink unmasked, Dr. Fauci said it depended on the size of the gathering.Dr. Anthony S. Fauci said the variant was no reason for Americans who were already vaccinated and boosted to change their behaviors beyond existing guidance from federal officials.Doug Mills/The New York Times“In a situation with a holiday season, indoor-type settings with family that you know is vaccinated, people that you know, you can feel safe with not wearing a mask and having a dinner, having a reception,” he said. But in larger public settings where it is unclear if everyone is vaccinated, he said, people should wear masks except to eat or drink.Mr. Biden and other Democrats sprinkled holiday reminders through the rest of the day, with only brief references to Omicron. The president spoke at a ceremony to light the menorah on Wednesday evening, in a packed ceremony that included Senator Chuck Schumer of New York, the chamber’s first Jewish majority leader.Mr. Schumer struck a more somber tone than the president earlier in the day, saying that the season “is a reminder that in the face of awful adversity we cannot lose faith in God’s providence. In the face of darkness, Hanukkah teaches that rather than curse the darkness we must light a candle.”Mr. Biden held his celebration of World AIDS Day in the East Room, which was decked with several Christmas trees, and with wreaths hanging over its mirrors. He began his supply chain remarks in the South Court Auditorium — which was adorned with flags, not tinsel — by noting he would light the National Christmas Tree on Thursday evening.Even when he talked about global shipping, Mr. Biden could not resist a holiday reference. Mr. Biden recalled runs on hot toys, like Cabbage Patch Kids in the 1980s and Beanie Babies in the 1990s, “in past years when there was no supply chain problem.”Shipping companies like UPS and FedEx this year are on track to deliver more packages than ever, Mr. Biden said. But he offered a caveat for children: “I can’t promise that every person will get every gift they want on time. Only Santa Claus can keep that promise.”Ana Swanson More

  • 163 Shares199 Views

    in Economy

    A Top Official Says the Fed Will ‘Grapple’ With a Faster Bond-Buying Taper

    by

    The president of the New York Federal Reserve said Omicron could prolong supply and demand mismatches, causing some inflation pressures to last.John C. Williams, president of the Federal Reserve Bank of New York, said the latest variant of the coronavirus could prolong the bottlenecks and shortages that have caused inflation to run hotter than expected, and is a risk Fed officials will assess as they “grapple” with how quickly to remove economic support.It is still too soon to know how the Omicron variant, which public health officials in southern Africa identified just last week, will affect the economy, Mr. Williams said Tuesday in an interview with The New York Times. But if the new version of the virus leads to another wave of infections, it could exacerbate the disruptions that have caused prices to rise at their fastest pace in three decades.“Clearly, it adds a lot of uncertainty to the outlook,” Mr. Williams said of the new variant. He later added that a risk with the new variant is that it “will continue that excess demand in the areas that don’t have capacity, and will stall the recovery in the areas where we actually have the capacity.”That, he said, would “mean a somewhat slower rebound overall” and “also does increase those inflationary pressures, in those areas that are in high demand.”Mr. Williams’s comments are the latest indication that policymakers are growing more concerned about inflation and are weighing how to respond. Jerome H. Powell, the Fed chair, signaled on Tuesday that the central bank could move to withdraw economic support more quickly than it initially expected and suggested that such a decision could come as soon as the Fed’s December meeting.The Fed had been buying $120 billion in government-backed securities each month throughout much of the pandemic to bolster the economy by keeping money flowing in financial markets. In November, officials announced plans to wind down that program gradually through the end of the year and the first half of 2022, a process known as “tapering.” But Mr. Powell indicated on Tuesday that the central bank could wrap up its bond-buying more quickly.Mr. Williams, who is vice chair of the Fed’s policymaking Open Market Committee and is a top adviser to Mr. Powell, did not explicitly endorse a faster tapering process, saying that “there’s a lot to learn and digest and think about coming up to the next meeting.”.css-1xzcza9{list-style-type:disc;padding-inline-start:1em;}.css-3btd0c{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-3btd0c{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-3btd0c strong{font-weight:600;}.css-3btd0c em{font-style:italic;}.css-1kpebx{margin:0 auto;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-family:nyt-cheltenham,georgia,’times new roman’,times,serif;font-weight:700;font-size:1.375rem;line-height:1.625rem;}@media (min-width:740px){#NYT_BELOW_MAIN_CONTENT_REGION .css-1kpebx{font-size:1.6875rem;line-height:1.875rem;}}@media (min-width:740px){.css-1kpebx{font-size:1.25rem;line-height:1.4375rem;}}.css-1gtxqqv{margin-bottom:0;}.css-19zsuqr{display:block;margin-bottom:0.9375rem;}.css-12vbvwq{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;}@media (min-width:740px){.css-12vbvwq{padding:20px;width:100%;}}.css-12vbvwq:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-12vbvwq{border:none;padding:10px 0 0;border-top:2px solid #121212;}.css-12vbvwq[data-truncated] .css-rdoyk0{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-12vbvwq[data-truncated] .css-eb027h{max-height:300px;overflow:hidden;-webkit-transition:none;transition:none;}.css-12vbvwq[data-truncated] .css-5gimkt:after{content:’See more’;}.css-12vbvwq[data-truncated] .css-6mllg9{opacity:1;}.css-qjk116{margin:0 auto;overflow:hidden;}.css-qjk116 strong{font-weight:700;}.css-qjk116 em{font-style:italic;}.css-qjk116 a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;text-underline-offset:1px;-webkit-text-decoration-thickness:1px;text-decoration-thickness:1px;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:visited{color:#326891;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:hover{-webkit-text-decoration:none;text-decoration:none;}But he emphasized that the economy had rebounded more strongly this year than he and other officials had been expecting, and said the unemployment rate had fallen quickly. That economic strengthening at a moment of high inflation may warrant less Fed support, he said.“The question is: Would it make sense to end those purchases somewhat earlier, by maybe a few months, given how strong the economy is?” he said. “That’s a decision, discussion, I expect we’ll have to grapple with.”Inflation has proved a thornier problem than the Fed and most private-sector economists predicted earlier this year. In March, Fed officials said they expected their preferred inflation measure to show consumer prices rising at 2.4 percent at the end of 2021; by September, they had revised that forecast to 4.2 percent.That’s likely to increase further. The central bank’s preferred inflation gauge climbed 5 percent in its most recent reading. Policymakers are closely watching to see what happens in a Consumer Price Index report set for release on Dec. 10, just before the Fed’s meeting on Dec. 14 and 15.Mr. Williams acknowledged that inflation had proved stronger and more lasting than he initially expected. But he said the error wasn’t the result of a misunderstanding of how the economy works; rather, it was his failure to anticipate the resurgence of the pandemic itself. Mr. Powell made similar comments in his testimony before the Senate on Tuesday.The spread of the Delta variant over the summer delayed the return of workers to the labor force by disrupting child care and making some people nervous to return to in-person work. It also contributed to supply-chain issues by causing a new round of factory shutdowns in some parts of the world and by extending the pandemic-era shift in consumer spending away from services and toward goods.Empty office space in New York this summer when the Delta variant wave delayed the return of workers. A new wave of cases could lead to more and longer-lasting inflation.Gabriela Bhaskar/The New York Times“These are all things that are driven — I think in large part, not totally, but in large part — to Covid, and the ability so far for us to get control of that,” he said. “This is just lasting a lot longer than expected.”The new variant, Mr. Williams added, “has that potential to just extend this process we’ve been going through.”If the Omicron variant further delays the return of workers and the easing of supply shortages, that could lead to more and longer-lasting inflation. But a new wave of virus cases could also hurt the demand side of the economy, leading people to spend less at restaurants and movie theaters and provoking a new wave of layoffs.Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More