Connect with us

Economy

Perspective | The delta variant is scary, but it won't sink the economy – The Washington Post

Published

 on


In recent days, major fear has been evident in financial markets and elsewhere that the delta variant of the coronavirus will spread widely and be a considerable impediment to continued economic growth: On Monday, the Dow tumbled 700 points, for example.

At least based on trends we’ve seen so far, these fears appear to be unfounded.

It is highly unlikely that the delta variant will lead to shutdowns of major sectors of the economy, of the sort we saw last spring and summer. The basic story is that in the states where the variant is causing the most infections and deaths, governors and other public officials are resistant to taking steps to contain the pandemic, especially if they carry an economic cost. So most economic enterprises will continue to do business, if not always at full capacity.

These states may face a public-health crisis but probably not an economic one. Meanwhile, the states where political leaders have been more responsive to public health concerns have far higher vaccination rates, and therefore the delta variant is not likely to pose a major health threat. Businesses therefore will continue to operate at a brisk pace.

We should expect this strong growth to continue (although the 7.6 percent rate is higher than we can expect to be sustained). The increased spread of the pandemic due to delta variant may shave a few tenths of a percentage point off our growth path, but it will not reverse it.

Before looking at the economics more closely, it is worth getting some perspective on the health risk posed by the delta variant, because public health and economics intersect. I am an economist, not an epidemiologist — and much is still subject to debate among the epidemiological experts — but it seems clear that a vaccinated population faces relatively little risk, even from delta.

Israel is often cited as a country where the delta variant has taken over rapidly — which is true, as a proportion of cases. But the death rates there remain nothing like they were at the pandemic’s peak, last winter. While cases have risen from essentially zero per 100,000 citizens in early June to roughly 10 per 100,000 citizens this week, death rates remain low: This week, that rate was .01 to .03 per 100,000, compared with more than 1 death per 100,000 people in mid-January. That’s partly because 60 percent of the population is fully vaccinated.

There is a similar story in Britain, where the delta variant has led to an explosion of cases but a limited uptick in deaths. The country reported .01 deaths per 100,000 citizens on Tuesday, compared with more than 2.5 deaths per 100,000 at the January peak. There is a lag between infections and deaths, so the full picture on deaths may not yet be evident, but vaccines weaken the link between cases and deaths; even when vaccinated people become infected, they rarely get seriously ill or die.

Currently, roughly 250 people are dying in the United States of covid daily — a figure that’s up significantly from two weeks ago. But while there is a huge range of uncertainty, we will almost certainly not see anything like the disaster in January, when we had close to 3,500 deaths a day. We probably will not even see a picture anywhere near as bad as last August, when deaths hit almost 1,200 a day at their peak.

And again, regional disparities are important as we attempt to grasp the economic situation. States such as Vermont and Massachusetts, where more than 80 percent of the population over 18 has received at least one dose, are seeing relatively few infections and deaths. Massachusetts, with a population of 6.9 million, has been averaging just three deaths a day from the pandemic. Each death is a tragedy, but such rates are unlikely to interfere with the state’s economic rebound.

By contrast, states such as Alabama and Louisiana, where just over 50 percent of the adult population has gotten at least one vaccine dose, are seeing cases soar and deaths climb. Alabama, with a population of 4.9 million, has been averaging five deaths a day, almost double the rate in Massachusetts. Louisiana, with a population of 4.6 million, has been averaging nine a day, roughly three times the Massachusetts rate.

Even without government action — restrictions on capacity and the like, which seem unlikely in the low vaccination states — there will be some economic hit, as people with serious immune issues, or other reasons to fear the pandemic, will avoid going to restaurants and other public places. But this is not going to have a large impact on the economy. Such people constitute a relatively small segment of the population, and such expenses represent a relatively small share of their normal spending. (Rationally, more unvaccinated people should be curtailing some of their activities, to protect themselves. But we are talking about what they are likely to do, not about what they ought to do.)

And of course, there are states that fall between the extremes of Vermont and Louisiana. In New York, for example, the proportion of fully vaccinated adults is 67 percent, with large variations across the state. It is very plausible that, if infection rates grow, New York state or New York City would impose restrictions on some activities such as indoor dining — although even in these cases, we are probably talking about limiting seating, not complete bans. The same could hold for theater and other activities involving indoor crowds. This will pinch parts of the New York economy, but restrictions on theater capacity will have little effect on the national economy.

In short, we have gotten lucky with the delta variant. It seems that our vaccines are largely effective in preventing death and serious illness — which makes a world of difference where the economy is concerned. The unvaccinated population is at greater risk, which is a huge public health issue, but the political leadership in the states where they are concentrated is not likely to take major steps to contain the pandemic — steps that would also hurt the economy.

There is, however, a hugely important point that we should all recognize. While our vaccines may be effective against the delta variant, the more the pandemic is allowed to spread around the world, the greater the risk that we will see a new variant against which they are not effective. That would lead to a whole new round of disease, death and economic shutdowns. Then economic pessimism would be warranted.

We should be mounting a World-War-II-scale, all-out effort to get the world vaccinated as quickly as possible. The humanitarian case for such an effort is overwhelming, but the case is compelling even on narrow self-interested grounds. If we fail to act, and a new strain forces another round of shutdowns, we would have only ourselves to blame for the economic calamity.

Adblock test (Why?)



Source link

Continue Reading

Economy

US economy surpasses pre-pandemic size with 6.5% Q2 growth – Associated Press

Published

 on


WASHINGTON (AP) — Fueled by vaccinations and government aid, the U.S. economy grew at a solid 6.5% annual rate last quarter in another sign that the nation has achieved a sustained recovery from the pandemic recession. The total size of the economy has now surpassed its pre-pandemic level.

Thursday’s report from the Commerce Department estimated that the nation’s gross domestic product — its total output of goods and services — accelerated in the April-June quarter from an already robust 6.3% annual growth rate in the first quarter of the year.

The latest figure fell well below the 8%-plus annual growth rate that many economists had predicted for the second quarter. But the miss was due mainly to clogged supply chains related to the rapid reopening of the economy. Those bottlenecks exerted a larger-than-expected drag on companies’ efforts to restock their shelves. The resulting slowdown in inventory rebuilding, in fact, subtracted 1.1 percentage points from last quarter’s annual growth.

By contrast, consumer spending — the main fuel of the U.S. economy — surged for a second straight quarter, advancing at an 11.8% annual rate. Spending on goods grew at an 11.6% rate, and spending on services, from restaurant meals to airline tickets, expanded at a 12% pace as vaccinations encouraged more Americans to shop, travel and eat out.

Companies, too, spent with confidence last quarter. Business investment surged at an 8% annual rate in the April-June quarter, adding 1.1 percentage point to GDP.

With consumers and businesses expected to keep spending, many analysts expect the economy to grow at a robust pace of around 6.5% for all of 2021, despite the supply shortages and the possibility of a resurgent coronavirus in the form of the highly contagious delta variant. That would amount to the strongest calendar-year growth since 1984.

Growth that strong would far exceed the 2% to 3% average annual rates of recent decades. And it would represent a striking bounce-back from the economy’s 3.4% contraction last year in the midst of the pandemic, the worst decline since the 1940s.

Underpinning the rapid recovery have been trillions in federal rescue money, ranging from stimulus checks to expanded unemployment benefits to small business aid to just-distributed child tax credit payments. And millions of affluent households have benefited from a vast increase in their wealth resulting from surging home equity and stock market gains.

“Consumers are going to continue to drive the economic train,” said Mark Zandi, chief economist at Moody’s Analytics. “There is a lot of excess savings, a lot of cash in people’s checking accounts.”

Jen Psaki, the White House press secretary, hailed the GDP report and called on Congress to go further by passing the administration’s proposals to vastly expand the nation’s infrastructure.

Overhanging the bright economic forecasts is the threat posed by the delta variant. The U.S. is now averaging more than 60,000 confirmed new cases a day, up from only about 12,000 a month ago. Should a surge in viral infections cause many consumers to hunker down again and pull back on spending, it would weaken the recovery.

For now, the economy is showing sustained strength. Last month, America’s employers added 850,000 jobs, well above the average of the previous three months. And average hourly pay rose a solid 3.6% compared with a year earlier, faster than the pre-pandemic annual pace.

Consumer confidence has reached its highest level since the pandemic struck in March 2020, a key reason why retail sales remain solid as Americans shift their spending back to services — from restaurant meals and airline trips to entertainment events and shopping sprees.

The economy is also receiving substantial support from the Federal Reserve. On Wednesday, the Fed reaffirmed that it will maintain its key short-term interest rate at a record low near zero to keep short-term borrowing costs low. It will also continue to buy government-backed bonds to put downward pressure on long-term loan rates to encourage borrowing and spending.

The recovery, in fact, has been so rapid, with pent-up demand from consumers driving growth after a year of lockdowns, that one looming risk is a potential spike in inflation that could get out of control. Consumer prices jumped 5.4% in June from a year ago, the sharpest spike in 13 years and the fourth straight month of sizable price jumps.

The measure of consumer inflation in the second-quarter GDP report showed an annual rise of 3.4% for core inflation, which excludes food and energy. It was the fastest such jump since 1991.

In addition to the drag on GDP from weak inventory restocking, reflecting the supply chain problems, housing construction fell at a 9.8% annual rate last quarter. This decline reflected, in part, the troubles home builders have had in obtaining lumber and other supplies.

Some economists have warned that by choosing not to begin withdrawing its extraordinary support for the economy, the Fed may end up responding too late and too aggressively to high inflation by quickly jacking up rates and perhaps causing another recession.

But at a news conference Wednesday, Fed Chair Jerome Powell underscored his belief that recent inflation readings reflect price spikes in a narrow range of categories — from used cars and airline tickets to hotel rooms and auto rentals — that have been distorted by temporary supply shortages related to the economy’s swift reopening. Those shortages involve items like furniture, appliances, clothing and computer chips, among others.

Adblock test (Why?)



Source link

Continue Reading

Economy

U.S. Economy Grew 1.6% in Second Quarter – The New York Times

Published

 on


Gross domestic product grew 1.6 percent in the second quarter, the latest gauge of a rebound that could be challenged by the Delta variant of the coronavirus.




#g-gdp-level-box ,
#g-gdp-level-box .g-artboard
margin:0 auto;

#g-gdp-level-box p
margin:0;

#g-gdp-level-box .g-aiAbs
position:absolute;

#g-gdp-level-box .g-aiImg
position:absolute;
top:0;
display:block;
width:100% !important;

#g-gdp-level-box .g-aiSymbol
position: absolute;
box-sizing: border-box;

#g-gdp-level-box .g-aiPointText p white-space: nowrap;
#g-gdp-level-335
position:relative;
overflow:hidden;

#g-gdp-level-335 p
font-family:nyt-franklin,arial,helvetica,sans-serif;
font-weight:300;
line-height:15px;
height:auto;
filter:alpha(opacity=100);
-ms-filter:progid:DXImageTransform.Microsoft.Alpha(Opacity=100);
opacity:1;
letter-spacing:0em;
font-size:14px;
text-align:left;
color:rgb(51,51,51);
top:1.1px;
position:static;
text-transform:none;
padding-bottom:0;
padding-top:0;
mix-blend-mode:normal;
font-style:normal;

#g-gdp-level-335 .g-pstyle0
height:15px;
font-size:12px;
text-align:right;
color:rgb(128,128,128);
top:1px;
position:relative;

#g-gdp-level-335 .g-pstyle1
height:15px;
font-size:12px;
color:rgb(128,128,128);
top:1px;
position:relative;

#g-gdp-level-335 .g-pstyle2
height:15px;
position:relative;

#g-gdp-level-335 .g-pstyle3
font-weight:700;
height:15px;
font-size:16px;
color:rgb(215,48,31);
top:1.3px;
position:relative;

#g-gdp-level-335 .g-pstyle4
font-weight:700;
line-height:17px;
height:17px;
position:relative;

#g-gdp-level-335 .g-pstyle5
height:15px;
font-size:12px;
text-align:center;
color:rgb(128,128,128);
top:1px;
position:relative;

#g-gdp-level-600
position:relative;
overflow:hidden;

#g-gdp-level-600 p
font-family:nyt-franklin,arial,helvetica,sans-serif;
font-weight:300;
line-height:16px;
height:auto;
filter:alpha(opacity=100);
-ms-filter:progid:DXImageTransform.Microsoft.Alpha(Opacity=100);
opacity:1;
letter-spacing:0em;
font-size:14px;
text-align:left;
color:rgb(51,51,51);
top:1.1px;
position:static;
text-transform:none;
padding-bottom:0;
padding-top:0;
mix-blend-mode:normal;
font-style:normal;

#g-gdp-level-600 .g-pstyle0
line-height:15px;
height:15px;
text-align:right;
color:rgb(128,128,128);
position:relative;

#g-gdp-level-600 .g-pstyle1
line-height:15px;
height:15px;
color:rgb(128,128,128);
position:relative;

#g-gdp-level-600 .g-pstyle2
line-height:15px;
height:15px;
position:relative;

#g-gdp-level-600 .g-pstyle3
font-weight:700;
line-height:15px;
height:15px;
font-size:16px;
color:rgb(215,48,31);
top:1.3px;
position:relative;

#g-gdp-level-600 .g-pstyle4
font-weight:700;
line-height:18px;
height:18px;
font-size:16px;
top:1.3px;
position:relative;

#g-gdp-level-600 .g-pstyle5
height:16px;
position:relative;

#g-gdp-level-600 .g-pstyle6
line-height:15px;
height:15px;
text-align:center;
color:rgb(128,128,128);
position:relative;

$20

trilion

4th qtr. 2019 level

+1.6%

from

previous

quarter

15

Gross domestic product

Adjusted for inflation and

seasonality, at annual rates

10

5

’15

’16

’17

’18

’19

’20

’21

$20

trilion

4th qtr. 2019 level

+1.6%

from

previous

quarter

15

Gross domestic product

Adjusted for inflation and

seasonality, at annual rates

10

5

0

’15

’16

’17

’18

’19

’20

’21


Source: Bureau of Economic Analysis

By Karl Russell

Vaccinations and federal aid helped lift the U.S. economy out of its pandemic-induced hole in the spring. The next test will be whether that momentum can continue as coronavirus cases rise, masks return and government help wanes.

Gross domestic product, the broadest measure of economic output, grew 1.6 percent in the second quarter of the year, the Commerce Department said Thursday, up from 1.5 percent in the first three months of the year. On an annualized basis, second-quarter growth was 6.5 percent.

Fueled by strong consumer spending and robust business investment, the growth brought output back to its prepandemic level, adjusted for inflation. That is a remarkable achievement, exactly a year after the economy’s worst quarterly contraction on record. After the last recession ended in 2009, the G.D.P. took two years to rebound fully.

G.D.P. rebounded much faster than it did in the Great Recession




#g-gdp-recession-compare-box ,
#g-gdp-recession-compare-box .g-artboard
margin:0 auto;

#g-gdp-recession-compare-box p
margin:0;

#g-gdp-recession-compare-box .g-aiAbs
position:absolute;

#g-gdp-recession-compare-box .g-aiImg
position:absolute;
top:0;
display:block;
width:100% !important;

#g-gdp-recession-compare-box .g-aiSymbol
position: absolute;
box-sizing: border-box;

#g-gdp-recession-compare-box .g-aiPointText p white-space: nowrap;
#g-gdp-recession-compare-335
position:relative;
overflow:hidden;

#g-gdp-recession-compare-335 p
font-family:nyt-franklin,arial,helvetica,sans-serif;
font-weight:500;
line-height:18px;
height:auto;
filter:alpha(opacity=100);
-ms-filter:progid:DXImageTransform.Microsoft.Alpha(Opacity=100);
opacity:1;
letter-spacing:0em;
font-size:14px;
text-align:left;
color:rgb(51,51,51);
top:1.1px;
position:static;
text-transform:none;
padding-bottom:0;
padding-top:0;
mix-blend-mode:normal;
font-style:normal;

#g-gdp-recession-compare-335 .g-pstyle0
font-weight:300;
line-height:13px;
height:13px;
font-size:12px;
text-align:right;
color:rgb(128,128,128);
top:1px;
position:relative;

#g-gdp-recession-compare-335 .g-pstyle1
font-weight:300;
line-height:13px;
height:13px;
font-size:12px;
color:rgb(128,128,128);
top:1px;
position:relative;

#g-gdp-recession-compare-335 .g-pstyle2
font-weight:300;
line-height:13px;
height:13px;
font-size:12px;
top:1px;
position:relative;

#g-gdp-recession-compare-335 .g-pstyle3
height:18px;
position:relative;

#g-gdp-recession-compare-335 .g-pstyle4
font-weight:700;
line-height:13px;
height:13px;
font-size:12px;
color:rgb(215,48,31);
top:1px;
position:relative;

#g-gdp-recession-compare-335 .g-pstyle5
font-weight:300;
line-height:12px;
height:12px;
font-size:12px;
text-align:center;
color:rgb(128,128,128);
top:1px;
position:relative;

#g-gdp-recession-compare-335 .g-pstyle6
font-weight:300;
line-height:13px;
height:13px;
font-size:12px;
text-align:center;
color:rgb(128,128,128);
top:1px;
position:relative;

#g-gdp-recession-compare-600
position:relative;
overflow:hidden;

#g-gdp-recession-compare-600 p
font-family:nyt-franklin,arial,helvetica,sans-serif;
font-weight:500;
line-height:20px;
height:auto;
filter:alpha(opacity=100);
-ms-filter:progid:DXImageTransform.Microsoft.Alpha(Opacity=100);
opacity:1;
letter-spacing:0em;
font-size:16px;
text-align:left;
color:rgb(51,51,51);
top:1.3px;
position:static;
text-transform:none;
padding-bottom:0;
padding-top:0;
mix-blend-mode:normal;
font-style:normal;

#g-gdp-recession-compare-600 .g-pstyle0
font-weight:300;
line-height:15px;
height:15px;
font-size:14px;
text-align:right;
color:rgb(128,128,128);
top:1.1px;
position:relative;

#g-gdp-recession-compare-600 .g-pstyle1
font-weight:300;
line-height:15px;
height:15px;
font-size:14px;
color:rgb(128,128,128);
top:1.1px;
position:relative;

#g-gdp-recession-compare-600 .g-pstyle2
font-weight:300;
line-height:15px;
height:15px;
font-size:14px;
top:1.1px;
position:relative;

#g-gdp-recession-compare-600 .g-pstyle3
height:20px;
position:relative;

#g-gdp-recession-compare-600 .g-pstyle4
font-weight:700;
line-height:18px;
height:18px;
font-size:18px;
color:rgb(215,48,31);
top:1.4px;
position:relative;

#g-gdp-recession-compare-600 .g-pstyle5
font-weight:300;
line-height:15px;
height:15px;
font-size:14px;
text-align:center;
color:rgb(128,128,128);
top:1.1px;
position:relative;

+

15

%

2001

Cumulative percentage change

in G.D.P. from the start of the

last five recessions

1980

1990

+

10

+

5

2007

0

2020

5

10

5

quarters since

recessions began

10

15

20

+

15

%

2001

1980

Cumulative percent change in G.D.P.

from the start of the last five recessions

1990

+

10

+

5

2007

0

2020

5

10

5

quarters since

recessions began

10

15

20


Note: Gross domestic product is adjusted for inflation and seasonality. Recessions are labeled by the years they started.

Source: Bureau of Economic Analysis

By Karl Russell

But the recovery is far from complete. Output is significantly below where it would be had growth continued on its prepandemic path, and other economic measures remain deeply depressed, particularly for certain groups. The United States has nearly seven million fewer jobs than before the pandemic. The unemployment rate for Black workers in June was 9.2 percent.

“The good news is, this is all occurring much more rapidly than after the financial crisis,” said Diane Swonk, chief economist for the accounting firm Grant Thornton. “The bad news is, the pain was much worse.”

For Sarah Ladley, the economy’s spring reawakening was a glimmer of hope after a brutal year for her business.

Ms. Ladley, 33, started selling banana-based frozen treats out of her Denver food truck nearly a decade ago, just after she graduated from college. The pandemic nearly wiped her out: She made it through last year with the help of a loan through the Paycheck Protection Program, but the business lost money. With pandemic restrictions still in place early this year, she began looking for another job to pay the bills.

Instead, the phone began ringing with people looking to hold events.

“All of a sudden in May, it was like the floodgates opened,” she said.

Now Ms. Ladley has a different set of problems. Business has rebounded, though not all the way, and she is having trouble fulfilling demand. She had to change the cups she uses after a vendor ran out, stores will sometimes be out of the fruit she needs and she has struggled to hire workers amid competition from businesses that can offer higher pay and year-round employment. She says she has had to turn away business to avoid burning out her limited staff.

“Things definitely aren’t normal, but even if they were normal, I wouldn’t be able to handle it,” she said.

Indeed, the economy’s second-quarter growth might have been stronger had it not been for supply-chain disruptions and labor challenges that made it difficult for many businesses to keep their shelves stocked and their stores staffed. Inventories fell and imports rose as companies turned to overseas suppliers and their own warehouses to meet demand where domestic producers could not. And despite a red-hot housing market, residential construction fell 2.5 percent in the second quarter as builders struggled to get materials and workers.

Those issues, combined with a rush of consumer demand, contributed to faster inflation in the second quarter. Consumer prices rose 1.6 percent from the first quarter of the year to the second. Without adjusting for inflation, economic output rose 3.1 percent.

Now a new threat is emerging in the highly contagious Delta variant of the coronavirus, which has led to a surge in cases in much of the country. The Centers for Disease Control and Prevention recommended this week that even vaccinated people should wear masks indoors in some parts of the country, and some mayors and governors have reimposed mask mandates.

Few economists expect a return to widespread business shutdowns or stay-at-home orders. But if the resurgent virus leads to renewed caution among consumers — a reluctance to dine at restaurants, hesitation about booking a late-summer getaway — that could weaken the recovery at a crucial moment.

“The reason that is concerning is that this burst of activity around reopening has been driving the economy the past couple months,” said Michelle Meyer, head of U.S. economics at Bank of America. “Even a modest change in behavior could show up more meaningfully this time around.”

Brandon Lindley is watching the Delta variant news with mounting concern. He and his husband, Raphael Polito, own retail stores in California and Arizona selling designer flip-flops and other tourism-oriented products. After a disastrous 2020, business has picked up in California this year, but they are grappling with supply-chain and labor issues, and their store in Scottsdale, Ariz., is still struggling. Business has softened since July 4, which Mr. Lindley suspects could reflect concern over the new variant.

“Everyone’s a little on edge,” he said. “They don’t know what’s coming down the pipeline.”

There is little evidence so far that either the Delta variant or inflation are making a dent in consumer demand overall. Consumer spending rose 2.8 percent in the second quarter, and more recent data from private-sector sources has yet to show a significant slowdown.

Spending on services was particularly robust in the second quarter as widespread vaccinations and falling coronavirus cases led Americans to return to restaurants, nail salons and other in-person activities. But goods spending remained strong as well, reflecting the strong financial position of many households after successive rounds of government aid, said Aneta Markowska, chief financial economist for Jefferies, an investment bank.

Personal income after taxes fell from the first quarter, when stimulus payments provided a temporary lift, but is still 6.4 percent above its prepandemic level after adjusting for inflation. And Americans are collectively sitting on trillions more in savings than they had before the pandemic.

“The story of the last two decades was that every time you got a price increase somewhere, it caused immediate demand destruction because household incomes and balance sheets were so constrained,” Ms. Markowska said. “Today that’s not the case. Household finances are in the best shape they’ve been in decades.”

Still, the recovery has been highly unequal. Data from Affinity Solutions, which tracks the credit and debit card transactions of 90 million U.S. consumers, shows that recent increases in spending have been driven by high-income households. Employment among people with a college degree — many of whom could work from home — fell less in the pandemic and has already returned to its previous level, while employment among those with a high school diploma or less remains millions of jobs below that benchmark.

“The people who were working and did not have an interruption in their pay were able to save more money and now have this pent-up demand,” said Kristen Broady, a Dillard University economist and a fellow at the Brookings Institution. For low-income households who fell behind on rent or bills during the pandemic, she said, “their situation is even worse than it was before.”

And this time, workers and businesses may have to face the pandemic without much help from the federal government. Roughly half the states have cut off enhanced unemployment benefits in recent weeks, and the programs are set to end nationally in September. The Paycheck Protection Program, which helped thousands of small businesses weather the crisis, is winding down. A federal eviction moratorium is scheduled to end this week. And there is no sign that Congress intends to pass a fourth round of direct checks to households.

Nela Richardson, chief economist for ADP, the payroll processing firm, said the second quarter might stand as a high-water mark for the recovery, when federal aid was still flowing and when vaccinations and the lifting of restrictions gave people an opportunity to spend.

“All the winds were going in one direction, which was to push the economy forward,” she said. “The more interesting question is: Where do we go from here?”

Adblock test (Why?)



Source link

Continue Reading

Economy

Fed's Powell downplays delta variant's threat to the economy – The Battlefords News-Optimist

Published

 on


WASHINGTON (AP) — The spread of the COVID-19 delta variant is raising infections, leading some companies and governments to require vaccinations and raising concerns about the U.S. economic recovery.

But on Wednesday, Federal Reserve Chair Jerome Powell injected a note of reassurance, suggesting that the delta variant poses little threat to the economy, at least so far.

article continues below

“What we’ve seen is with successive waves of COVID over the past year and some months now,” Powell said at a news conference, “there has tended to be less in the way of economic implications from each wave. We will see whether that is the case with the delta variety, but it’s certainly not an unreasonable expectation.”

Powell spoke after the Fed ended its latest policy meeting in which it signaled, for the first time since the pandemic began to ease, that the economy is moving closer to the “substantial further progress” it wants to see before reducing the $120 billion in bonds it is buying each month. Those purchases are intended to lower rates on longer-term consumer and business loans to spur more borrowing and spending.

A reduction in the bond buying, which likely won’t start until the end of this year or early next year, would represent the start of a gradual pullback in the Fed’s support for the economy. Only when the bond purchases are completed is the Fed expected to begin considering raising its benchmark interest rate from zero, where it’s been since the pandemic erupted in March last year.

At his news conference, Powell acknowledged that the quickening spread of the highly contagious delta variant was threatening some areas of the nation where vaccinations are low, and he noted that “some forecasts are for them to rise quite significantly.” And he said that as the virus spreads, some consumers might pull back from the spending that has propelled the rapid rebound from the pandemic recession.

“Dining out, traveling, some schools might not reopen,” he said. “We may see economic effects from some of that or it might weigh on the return to the labor market. We don’t have a strong sense of how that will work out, so we’ll be monitoring it carefully.”

But Powell noted that last summer’s wave of infections had inflicted less damage to the economy that many analysts had forecast.

“We’ve kind of learned to live with it, a lot of industries have kind of improvised their way around it,” Powell added. “It seems like we’ve learned to handle this.”

The statement the Fed issued after its latest policy meeting said that ongoing vaccinations were helping to support the economy. But it dropped a sentence it had included after its previous meeting that said those vaccinations have reduced the spread of COVID-19.

The Fed’s latest policy statement comes as the economy is sustaining a strong recovery from the pandemic recession, with solid hiring and spending. That improvement, and a pickup in inflation, are key reasons why Powell and other Fed policymakers are believed to be moving closer toward pulling back their economic support. Consumer prices jumped 5.4% in June from a year ago, the biggest increase in 13 years. And a separate inflation gauge the Fed prefers has risen 3.9% in the past year.

Last month’s inflation surge marked a fourth straight month of unexpectedly large price increases, heightening fears that higher costs will erode the value of recent pay raises and undermine the economic recovery.

But Powell underscored his belief that recent inflation readings reflect price spikes in a narrow range of categories — such as used cars, airline tickets, hotel rooms, and car rentals — that have been distorted by temporary supply shortages resulting from the economy’s swift reopening.

The Fed’s most important inflation measure, Powell stressed, is what it calls “inflation expectations” — what businesses and consumers expect prices to do in the coming months and years. Expectations are important because they can be self-fulfilling: If companies expect their costs to rise, say, 3%, they are likely to raise their own prices by the same amount.

So far, current price increases haven’t raised inflation expectations much, Powell said.

“All the evidence is that it’s not happening,” he said.

While Powell fielded many questions about inflation, he also said that hiring needed to progress further before the Fed would be ready to dial down its support for the economy.

“Chairman Powell did a very good job of refocusing the discussion on the idea that the Fed is not looking to materially alter its policy until we get at least close to full employment,” said Russell Price, chief economist at Ameriprise Financial. “So that what he’s telling people there is that, that’s still their primary focus.”

Among Fed watchers and investors, there is some concern that the central bank will end up responding too late and too aggressively to high inflation by quickly jacking up interest rates and potentially causing another recession. Earlier this month, Republicans in Congress peppered Powell with questions about inflation.

But at his news conference, Powell said that if “we were to see inflation moving up to levels persistently that were above significantly, materially above our goal … we would use our tools to guide inflation back down” to the Fed’s target average inflation of 2% annually.

After a period of broad agreement during the pandemic crisis, the Fed’s policymakers appear divided over how soon to bein tapering its bond purchases. Several regional Fed bank presidents support tapering soon, including James Bullard of the St. Louis Fed, Patrick Harker of the Philadelphia Fed and Robert Kaplan of the Dallas Fed.

But Powell has said that the central bank wants to see “substantial further progress” toward its goals of maximum employment and price stability before it would consider reducing the bond purchases. To make up for years of inflation remaining below 2%, the Fed wants inflation to moderately exceed its 2% average inflation target and to show signs of remaining above that level for an unspecified time.

Powell has said the Fed will communicate its intention to taper “well in advance” of doing so. Many economists think that signal will occur in late August or September.

At their two-day meeting that ended Wednesday, Fed officials also discussed the mechanics of paring its bond purchases, including how fast the purchases would be wound down.

The Fed is buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month in an effort to force down loan rates. Some on the Fed’s policymaking committee favor tapering the mortgage bond purchases soon, because home prices are soaring and ultra-low loan rates might be overheating demand for homes.

But Powell said he didn’t agree, suggesting that both Treasury and mortgage bond purchases tend to have similar effects on mortgage rates and other borrowing costs.

___

AP Economics Writer Martin Crutsinger contributed to this report.

Adblock test (Why?)



Source link

Continue Reading

Trending