Stocks dive over the potential economic fallout from the omicron variant

Stocks took a big tumble on Tuesday as investors weighed the potential economic fallout from the new omicron coronavirus variant.

The Dow Jones Industrial Average closed down 652 points.

"Price increases have spread much more broadly in the recent few months across the economy, and I think the risk of higher inflation has increased," warned Federal Reserve Chair Jerome Powell in testimony before the Senate Banking Committee.

Powell warned that growing concern over the coronavirus, including the new omicron variant, could make people wary about returning to in-person jobs. That could slow the recovery of the labor market and prolong the supply-chain bottlenecks that have contributed to the highest inflation in more than three decades.

The central bank chief said elevated inflation is likely to continue well into next year.

Fed policymakers are set to meet in about two weeks. Powell said that by then, they may have more information about the possible health effects of the omicron variant and how it responds to existing vaccines.

With rising price pressures, the central bank has begun to dial back its aggressive bond-buying program, which was put in place in the early part of the coronavirus pandemic to support the financial markets. But Powell suggested that the process could be accelerated, so bond purchases would end a few months earlier than next summer.

Ending the bond purchases early would give the Fed more flexibility to raise interest rates, if necessary, to keep inflation from spiraling out of control.

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