There’s not that much that we know about the medical effects of the Omicron variant, although if there is such a thing as an emerging consensus, it seems to be that (1) it is highly infectious and that (2) the vaccinated can catch it, but, if they do, the consequences should in most cases be relatively mild. There are even suggestions from the South African data that Omicron may not be that dangerous (these things are all relative, of course).
On that latter topic, the Daily Telegraph’s Ambrose Evans-Pritchard comments:
Scientists will know in a couple of weeks whether omicron has a lower case fatality rate than delta.
They flag two obvious grounds for caution: viral infections tend to start with mild disease; and past waves show that young people tend to catch Covid first before it spreads up the age ladder.
The original cohort of patients breezing through surgeries in Johannesburg with little more than a headache may be a trick of the time sequence.
It’s still early days.
So far as the economy is concerned, even before today, Fed chairman Jerome Powell had flagged the fact that Omicron might trigger further supply-chain disruptions (or presumably prolong existing ones). The implication of that is that the current inflationary surge will last even longer than was already anticipated by the Fed (until some time in the second and third quarters of 2022), bad news even if there is more to rising prices than supply-chain problems and energy prices (spoiler: There is).
Whatever is behind this inflationary moment, the fact that Powell is now (Tuesday) proposing to speed up his rather leisurely taper timetable is the right way to go.
Mr. Powell said elevated inflation pressures and rapid improvements in the labor market would justify “wrapping up the taper, perhaps a few months sooner.” He joined a handful of Fed officials who said recently they would support deliberating at the Fed’s Dec. 14-15 meeting whether to accelerate the process of reducing those purchases.
If officials were to quicken the pace at which they reduce the purchases by $30 billion a month after the December meeting, they could conclude the program by March, giving them more flexibility to raise rates in the first half of next year.
“You’ve seen our policy adapt and you’ll see it continue to adapt” in response to concerns about more persistent inflation, Mr. Powell said.
Also, of note — “Transitory” R.I.P:
Mr. Powell backed away from the central bank’s initial characterization that elevated prices would be short-lived, or transitory. “It’s probably a good time to retire that word and explain more clearly what we mean,” he said.
And Powell made clear that, in his view, supply-chain disruptions are not, so to speak, acting alone:
Mr. Powell said he still expects that because many price increases can be traced to supply-and-demand imbalances that resulted directly from the pandemic, inflation would decline next year. “But it’s also the case that pricing increases have spread much more broadly” in recent months, he said.
Mr. Powell pointed to rising energy prices, increasing rents and brisk wage gains as other factors that could keep inflation elevated. But the persistence of supply constraints remains hard to predict, and “it now appears that factors pushing inflation upward will linger well into next year,” he said.
But even if supply-chain problems are not the sole cause of the current inflationary spike, they still matter. In the context of Omicron, it is worth remembering that current supply-chain disruptions are partly (only partly) the consequences of overly draconian governmental responses to the coronavirus over the past 18 months. The question now is whether those errors are going to be repeated on enough of a scale to set back the recovery in supply chains — of which there is some evidence — and, for that matter, lead to other disasters that, at many levels, we cannot afford.
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