Market, Omicron risks pose new challenge for Fed policy pivot

• U.S. Federal Reserve officials, having plotted what seemed a clear battle plan against high inflation, must now contend with fresh signs the coronavirus is again slowing the economy as well as markets conspiring to tighten financial conditions faster than Fed policymakers may have hoped. 
• The combination of economic data pulling in one direction and investors in another could make the Fed's meeting next week unexpectedly complex as policymakers try to balance continued uncertainty over the health crisis against markets adjusting fast around projections the Fed may need to act even more aggressively against inflation. 
• At next week's two-day meeting on Tuesday and Wednesday the challenge is to acknowledge the economic risks from the virus without diminishing the commitment to fight inflation, or, conversely, of coming off as so concerned about prices that investors expect even stricter policies to come. 
• Investors, so far, have taken the Fed's consensus around rate hikes into consideration. Interest rate futures markets reflect strong odds for as many as five rate increases this year of a quarter percentage point each, and real-world borrowing costs for consumers looking to buy a home, corporations aiming to raise capital and even the U.S. government have shot up as a consequence. U.S. stocks have fallen sharply since the start of the year as investors worry higher rates will hit technology and growth shares.

 (Source: Reuters)