By David Goldman, CNN Business

Here we go again. Federal Reserve Chairman Jerome Powell is set to testify Tuesday that the Omicron variant threatens America’s economic recovery.

Much remains unknown about Omicron. Yet if it prolongs the pandemic, it could keep prices rising, hurt job growth and make the supply chain crisis worse.

“The recent rise in Covid-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” Powell wrote in prepared testimony he’s set to deliver Tuesday to the Senate Committee on Banking, Housing, and Urban Affairs.

Wall Street sold off stocks and oil Friday after learning about the potentially highly infectious and more immunity-resistant variant. But the market regained much of its lost ground Monday after investors took a breath and sensed a buying opportunity.

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Stocks similarly sold off when Wall Street first heard about the Delta variant, but it soon rebounded and surged to new records as vaccine availability spread and health officials learned how to better manage the pandemic.

In his prepared testimony, Powell noted the economy took a body blow in the summer as the Delta variant spread across the globe. Many Americans were afraid to travel, shop, eat at restaurants and return to the office. That kept caregivers at home, exacerbating the labor shortage and supply chain crisis that have held back the US economy.

But infections fell throughout the fall, and the economy picked up steam. Powell predicted the US economy would grow a robust 5% this year. As infections fell, starting in September, the job market rebounded, and the unemployment rate fell to 4.6%, the lowest rate since May 2020.

The economy has ebbed and flowed with rising and falling infections, and Omicron threatens to undo much of the economic goodwill America has generated throughout the autumn months.

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“Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions,” Powell wrote in his testimony.

Powell, who President Joe Biden recently renominated for a second term as Fed chair, said the imbalance of supply and demand have artificially sent prices surging well above the Fed’s 2% annual inflation target. Americans have spent about 5% more on goods and services this year, Powell noted.

Inflation could be here to stay for a bit longer, Powell said. It’s a bit of a Catch-22: The labor shortage had been sending wages (and prices) higher. But with job growth accelerating in recent months, employers are finding fewer applicants for their available jobs — and they have to raise pay to attract new workers.

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