Jonnelle Marte and Ann Saphir

(Reuters) – The Omicron version of COVID-19 may prolong some supply chain problems that heightened inflationary pressures in the pandemic. Central banks require flexibility to deal with the uncertainty landscape. This was a statement by a panel economic experts at the Reuters Next conference.

Kristin Forbes is an economist at MIT’s Sloan School of Management. She stated that “on the supply side it means that the inflationary pressures may persist even longer.” Given how tight things are right now, it could lead to some significant increases in inflation due to supply-side constraints.

The panelists suggested that there could be a less severe economic effect from this variant depending on its spread, effectiveness and severity.

The panelists suggested that the central banks might have trouble navigating uncertainty caused by the emerging virus. This is because many people are withdrawing support from them during the pandemic and also fighting rising inflation.

Policymakers are aware that they could face substantial risks in financial markets, credit markets and in inflation if there is a negative reaction to a shift in monetary policy, said Jose Perez-Gorozpe, head of emerging markets credit research at S&P Global (NYSE:) Ratings.

A number of Federal Reserve officers have publicly stated that they would be open to selling more assets faster to raise interest rates quicker if they need to. Inflation will also be a subject that will be raised at the December 14-15 Federal Reserve meeting.

Robin Brooks (chief economist, Institute of International Finance) said the Fed might have complicated its exit strategy for quantitative easing (QE), when it promised to purchase a set amount of securities per month.

Brooks suggested that we could have used variable amounts given the uncertain nature of the COVID crisis or the speedy recovery. We could have done QE in flexible amounts, which would have allowed us to avoid the whole tapering conversation that we are now facing.

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