While Washington is captivated by the chaotic scene in Afghanistan, Wall Street and Main Street are wondering whether the spread of the coronavirus delta variant will harm the US economy.
Consumer surveys show Americans are very concerned about the Delta.
A new poll found that coronavirus fear is the highest since a record outbreak last winter. And a recent reading of consumer sentiment fell to its lowest level in 10 years in early August, even falling below the early pandemic’s levels.
Senior Federal Reserve officials are also concerned.
Two presidents of the Federal Reserve Bank said the Delta variant could affect their decision on when the central bank should begin withdrawing support to the economy. The Fed has taken a number of unprecedented measures over the past year to ensure the economy does not collapse.
Read: Fed’s Kashkari says the Delta variant “plays a big role” in his taper decision
Likewise: Fed chaplain could reconsider calls for a throttle if the delta option slows the economy
However, what Americans think or say is not the same as what they do. Ditto for business.
The US economy has grown at a rapid pace since the Delta Falls exploded in July. Americans still fly, drive, and travel in far greater numbers than a year earlier. And they still spend a lot of money.
For their part, companies are trying to hire millions of workers to keep up with demand. Most have now successfully adjusted to the pandemic and are preparing for the event that the number of cases drops again.
For their part, governments are not using a heavy hand, as they did at the beginning of the pandemic, to avoid a major fallback in the economy.
“The Delta variant poses a risk, but officials will focus on stepping up vaccinations rather than imposing tough restrictions to contain the latest wave of infections,” said Oren Klachkin, senior US economist at Oxford Economics.
The week ahead will provide further clues as to whether the Delta variant really started biting the economy in August. So far, the evidence suggests it only nibbled at the edges.
See: MarketWatch economic calendar
Two IHS Markit polls on Monday will tell us whether the service or manufacturing side of the economy has deteriorated. And later in the week, the final consumer sentiment reading in August could show if anxiety subsides as the month progresses.
What is sure to grab the most attention from the Wall Street DJIA, + 0.65% this week, is the latest snapshot of inflation as measured by the Fed’s preferred PCE price index. The gauge showed that inflation rose at an annual rate of 4% in June – the largest increase since 2008.
Fed officials appear to have resigned themselves to the notion that inflation will stay high longer than the central bank previously forecast. You still expect inflation to pull back to the 2% target next year but aren’t sure how long it will take.
Read: Fed fears that the delta variant could prolong the scarcity and keep inflation high through 2022
The July PCE numbers are unlikely to offer the Fed much comfort. The index is expected to rise 0.4% and increase the annual increase to 4.2%.
But, as the Fed has made clear, it is more focused on supporting the economy than worrying about what it sees as a temporary surge in inflation. If the delta starts to slow the economy, don’t expect the central bank to let up on the gas.
The Delta variant “could put a damper on the economy that could slow things down,” said Minneapolis Federal Reserve President Neel Kashkari.