Jerome Powell and Janet Yellen testify about the economy.

Ms. Yellen will also warn that the path of the recovery depends on the pandemic.

“Of course, the progress of our economic recovery can’t be separated from our progress against the pandemic, and I know that we’re all following the news about the Omicron variant,” Ms. Yellen will say, adding that vaccines continue to be a crucial tool. “We’re still waiting for more data, but what remains true is that our best protection against the virus is the vaccine.”

The Treasury secretary will also urge lawmakers to raise or suspend the nation’s borrowing cap next month. Ms. Yellen has said that the United States could be unable to pay its bills sometime after Dec. 15. At that point, Social Security checks and military paychecks could be delayed and the country would face a deep recession.

“I cannot overstate how critical it is that Congress address this issue,” Ms. Yellen will say. “America must pay its bills on time and in full. If we do not, we will eviscerate our current recovery.”

Much is unknown about the new variant of the coronavirus, but it represents something Fed officials worry about: The possibility that the pandemic will continue to flare up, shutting down factories, roiling supply lines and keeping the economy out of balance. If that happens, as it did with the Delta variant earlier this summer and fall, it could perpetuate high prices.

Inflation has surged in 2021 as strong consumer demand has crashed into the barrier of limited supply. Production line closures, port pileups and parts shortages have kept goods from getting onto shelves and to customers, prompting companies to charge more. At the same time, a dearth of labor in certain industries caused by virus wariness and pandemic-related child-care shortages has been pushing up wages and prices for some services.

It’s too early to know if the new virus strain will contribute to those trends, making inflation last longer than it otherwise would. But the new variant strikes at a delicate moment for monetary policy.

Central bankers are slowing their bond-purchase program, a move that should give them more flexibility to raise interest rates — their more traditional and powerful tool for stoking the economy — if doing so should prove necessary next year.

Several Fed officials have signaled that they may speed up their so-called bond-buying “taper” given how high and how stubborn inflation is proving. Many economists think officials could announce a plan to do so at their meeting in December.

But if the coronavirus again hits the economy, it could make such a decision — and the timing and pace of eventual rate increases — more challenging.

That’s because the Fed balances two goals, controlling inflation and stoking employment, when it sets its policy. A faster and fuller removal of help for the economy might slow down price gains by weighing down demand, but it would likely slow business expansions and hiring in the process.

“We will use our tools both to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched,” Mr. Powell plans to say, after once again acknowledging that the Fed realizes “high inflation imposes significant burdens, especially on those less able to meet the higher costs of essentials like food, housing, and transportation.”

Mr. Powell, whom President Biden plans to reappoint for a second term as Fed chair, will tell lawmakers that the Fed is “committed to our price-stability goal.”

On Monday, Mr. Biden called Omicron “a cause for concern, not a cause for panic,” and his press secretary, Jen Psaki, told reporters that she was not aware of any projections by the administration’s economic team for how the variant might affect hiring, growth and inflation. “It is something obviously we will continue to assess,” she said.

Article source: https://www.nytimes.com/live/2021/11/30/business/news-business-stock-market