Fed’s Powell economy to navigate new wave of coronavirus – .

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Fed’s Powell economy to navigate new wave of coronavirus – .


Federal Reserve Chairman Jerome Powell adjusts his tie as he arrives to testify before a Senate Committee on Banking, Housing and Urban Affairs hearing on “The Semi-Annual Monetary Policy Report to Congress” on Capitol Hill in Washington, United States, July 15, 2021. REUTERS / Kevin Lamarque / File Photo

WASHINGTON, July 30 (Reuters) – The conviction of Federal Reserve Chairman Jerome Powell that the US economy has “learned to manage” the coronavirus and will not be overwhelmed by a new wave of infections or the rise in inflation could be tested in the coming weeks as schools reopen, supply chains remain clogged and federal unemployment benefits decline.

Data released Thursday showed the risk ahead as the country navigates the transition from an economy dependent for a year on federal government benefits to an economy where these emergency programs expire and private revenues take over. Read more

The economy returned to its pre-pandemic production level in the second quarter, according to gross domestic product data released by the Commerce Department on Thursday, a rebound that came sooner than expected. But the report also showed that personal income was declining alongside a decline in federal transfer payments and economic growth of 6.5% per year, slightly below the 7% expected by the U.S. central bank. Read more

It was massive federal stimulus, unemployment benefits and other payments that led to “better than anyone” results in a wave of coronavirus last summer, which Powell cited on Wednesday as evidence that every wave of COVID-19 had successively less impact savings.

These government payments are disappearing just as concerns grow about the spread of the more infectious Delta variant of the virus, putting a new note of caution about the prospects for growth in the United States.

Although second-quarter GDP was slightly lower than expected and the Delta variant was “a major downside risk,” Lydia Boussour, chief US economist for Oxford Economics, said she continued to anticipate growth of 7% for the full year as supply chain problems ease, goods hit shelves and consumers continue to spend.

“We still expect the economy to maintain strong momentum,” she wrote in a note.

In contrast, Paul Ashworth, chief economist for North America at Capitol Economics, painted a grim economic picture in which the Delta variant becomes a drag and rising prices reduce household purchasing power. Inflation measures in Thursday’s GDP report, at over 6%, are the highest since the early 1980s, when the Fed battled entrenched price increases.

Ashworth said economic growth could slow to just 3.5% in the second half of the year, “with the impact of the fiscal stimulus easing, soaring prices weakening purchasing power, the variant Delta going mad in the South ”.

“CHALLENGING RESULT”

Powell released his direct assessment of the COVID-19 threat to the economy at a press conference on Wednesday to discuss the Fed’s latest policy meeting. In their statement, policymakers said the economic recovery appeared to be on track, the impact of the virus on the economy continued to subside, and the economy was progressing towards the day when the Fed could reduce some of the measures. emergency measures taken in 2020 to heal the economy during the pandemic. Read more

Coupled with earlier changes, the Fed’s actions this week continued the central bank’s constant divorce between the ongoing pandemic and the outlook for the economy.

Epidemiologists warned early on that the coronavirus would not go away – with true herd immunity an ambitious goal in a country with high levels of vaccine reluctance – but would instead be part of the social and economic context for years to come. .

The Fed, in successive stages, seemed to take this point of view. Since April, he has stopped referring to the pandemic as a factor weighing on the economy, highlighted the impact of vaccinations and said this week, indeed, that the virus will remain a future risk, but not a significant one.

“We’ve kind of learned to live with it,” Powell told reporters. Even with the Delta variant filling hospitals in parts of the country, “with a reasonably high percentage of the country vaccinated and the vaccine apparently effective … the effects will likely be less.” There probably won’t be any major blockages and the like. like that. “

We will see if this remains the case at the end of the summer and in the fall. Some businesses have already delayed the expected return of their workforce to offices, potentially delaying the day when downtown retail stores and restaurants will see their weekday traffic return.

Powell acknowledged that, at the margins, and for a while at least, Delta’s push could lead to further complications if school districts delay reopening in-person learning or if sidelined workers wait a few weeks. more to resume their work.

But for now, and in the absence of a marked darkening of the economic outlook, this will not derail the Fed’s planning which anticipates continued job growth and must also manage the risks of potentially inflation. higher.

Diane Swonk, chief economist at Grant Thornton, called Powell’s comment this week “defiantly optimistic” and listed the hurdles her prospects face -om the Delta variant to the slow and continuous efforts of millions. unemployed people to find new jobs.

The new wave of infections “has already delayed the return to the offices of some companies later this year,” Swonk wrote. “We get used to spending during epidemics, as Powell noted… This spending has been supported by fiscal stimulus. This will decrease at the dawn of 2022. “

Reporting by Howard Schneider Additional reporting by Lindsay Dunsmuir; Editing by Dan Burns and Paul Simao

Our Standards: Thomson Reuters Trust Principles.

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