White House Expects Economy To Power Through Omicron

White House economist believes that inflation is falling by about half and admits that the pandemic has challenged economic forecasting as the Federal Reserve targets inflation at 2%.

Existing vaccine protections should help the United States to largely power through the emergence of the omicron coronavirus variant and avoid additional lockdowns according to Cecilia Rouse, chairwoman of the White House Council of Economic Advisers.

While the White House awaits more information about the variant’s transmissibility and severity, as well as vaccine efficacy, the country is “not in the same place we were a year ago,” Rouse said Tuesday, addig that the Biden administration didn’t fully anticipate prolonged supply chain disruptions that have contributed to elevated inflation this year.

Speaking at The Wall Street Journal’s CEO Council Summit, Rouse said that earlier in 2021 when the administration projected consumer prices would rise about 2% this year, officials assumed the US economy would be more readily able to adjust to changing consumption patterns during the pandemic.

“We anticipated that the market would be more open,” Ms. Rouse said. The administration “just didn’t fully appreciate that the supply system, the supply chain, wouldn’t be able to process through the elevated demand for durable goods”, she added.

Inflation has surged this year, with consumer prices advancing 6.2% in October from a year earlier, a 31-year high, according to the Labor Department.

Pandemic disruptions both in the US and abroad, including backlogs at ports and factory closures, have led to limited supply of products.

Several employers report challenges filling open positions, leading to difficulties in delivering goods and services to consumers, along with wage increases meant to attract workers.

“Whether it’s literally gotten to 2% by year’s end, I don’t know that I would quite go that far. But I do expect it to be half or so,” she said.

Meanwhile, the unemployment rate has fallen this year, reaching 4.2% in November, the lowest level since the pandemic’s onset. Ms. Rouse said the Biden administration’s policies, including a $1.9 trillion aid package passed by Democrats in the spring, had helped propel the labor market’s improvement by sustaining demand.

But critics, including former Treasury Secretary Lawrence Summers, who served in the Clinton and Obama administrations, argue the aid package overheated demand because it was enacted at a time when the economy was already on the mend.

Summers, also speaking at the CEO Council Summit on Tuesday, said the prospects for an economic recession have increased, in part because of elevated inflation.

With inflation in the 5% to 6% range, “achieving a soft landing from that without recession, I think is not likely to be easy, and the pressures to bring down inflation are going to be very strong”, Summers said.