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As Washington is riveted by the chaotic scene in Afghanistan, Wall Street and Main Street are questioning whether the spread of the delta variant of the coronavirus will hurt the U.S. economy.
Consumer surveys show Americans are quite worried about the Delta.
A new poll has found anxiety over the coronavirus to be the highest since a record outbreak last winter. And a recent reading of consumer confidence in early August fell to its lowest level in 10 years, even falling below levels at the start of the pandemic.
Senior Federal Reserve officials are also concerned.
Two Federal Reserve bank chairmen have said the delta variant could influence their decision on when the central bank should start withdrawing support for the economy. The Fed embarked on an unprecedented series of measures last year to ensure the economy does not collapse.
Read: Fed’s Kashkari Says Delta Variant ‘Matters A Lot’ For Reduction Decision
Also: Fed’s Kaplan might rethink call for cut if delta variant slows economy
What Americans think or say, however, is not the same as what they do. Ditto for businesses.
Since the delta cases exploded in July, the US economy has continued to grow at a rapid rate. Americans are still flying, driving and traveling in far greater numbers than a year ago. And they’re still spending a lot of money.
Companies, for their part, are trying to hire millions of workers to keep up with demand. Now, most have successfully adapted to the pandemic and are preparing for the possibility of a further decline in the number of cases.
Governments, for their part, are not using a heavy hand like they did at the start of the pandemic to avoid a big economic downturn.
“The delta variant poses a risk, but public officials will focus on scaling up vaccinations rather than introducing severe restrictions as a way to contain the latest wave of infection,” said Oren Klachkin, chief US economist at Oxford Economics.
The coming week will offer more clues as to whether the Delta variant really started to weigh on the economy in August. So far, the evidence suggests that it just nibbles the edges.
See: MarketWatch Economic Calendar
A pair of IHS Markit surveys on Monday will tell us if there has been any deterioration on the services or manufacturing side of the economy. And later in the week, the final consumer sentiment reading in August could reveal whether anxiety is diminishing as the month wears on.
What will certainly catch the most attention of Wall Street DJIA,
this week is the latest snapshot of inflation as measured by the Fed’s preferred PCE price index. The gauge showed inflation was rising at an annual rate of 4% in June – the biggest increase since 2008.
Fed officials appear to have resigned themselves to the idea that inflation will stay higher for longer than the central bank predicted. They still think inflation will pull back to its 2% target by next year, but they are less sure how long that will take.
Read: Fed fears Delta variant will prolong shortages and keep inflation high until 2022
The July PCE numbers are unlikely to reassure the Fed. The index is expected to rise 0.4% and push the annual increase to 4.2%.
Yet, as the Fed has made clear, it is focusing more on supporting the economy than on what it sees as a temporary inflation surge. If the delta starts slamming the economy, don’t expect the central bank to release the gas.
The delta variant “could be a drag on the economy that could slow things down,” Minneapolis Federal Reserve Chairman Neel Kashkari said.
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