While Washington is fascinated by the chaotic scene in Afghanistan, Wall Street and Main Street are wondering if the spread of the delta variant of the coronavirus will harm the U.S. economy.
Consumer surveys show that Americans are quite concerned about the delta.
A new survey found that anxiety about coronavirus is highest since a record outbreak last winter. And a recent reading of consumer sentiment in early August dropped to its lowest level in ten years, even falling from initial pandemic levels.
Senior Federal Reserve officials are also concerned.
A couple of Federal Reserve bank presidents said the delta variant could influence their decision on when the central bank should start withdrawing support for the economy. The Fed participated last year in an unprecedented series of measures to make sure the economy did not collapse.
Read: The Fed’s Kashkari says the delta variant “matters a lot” for its narrow decision
Too: Fed’s Kaplan could reconsider request for volume reduction if delta variant slows economy
However, what Americans think or say is not the same as what they do. Ditto for business.
Since delta cases erupted in July, the U.S. economy has continued to grow rapidly. Americans continue to fly, drive, and travel in a much larger number compared to a year earlier. And they continue to spend a lot of money.
Companies, meanwhile, are trying to hire millions of workers to keep up with demand. By now most have successfully adapted to the pandemic and are preparing for the eventuality that the number of cases will decrease again.
Governments, on the other hand, do not use a heavy hand as they did at the beginning of the pandemic to prevent a major relapse in the economy.
“The delta variant poses a risk, but public officials will focus on increasing vaccinations instead of introducing severe restrictions as a means to contain the latest wave of infection,” said Oren Klachkin, a U.S. economist at Oxford Economics.
Next week will offer more clues as to whether the delta variant really started to plummet the economy in August. So far, evidence suggests it has only been itchy by the edges.
See: MarketWatch Economic Calendar
A couple of IHS Markit surveys on Monday will tell us if there has been any deterioration in the service or manufacturing economy. And later, the final reading of consumer sentiment in August could reveal whether anxiety diminished as the month progressed.
What is sure to catch the eye of Wall Street DJIA,
this week is the latest snapshot of inflation as measured by the Fed’s preferred PCE price index. The meter showed that inflation was rising at an annual rate of 4% in June, the largest increase since 2008.
Fed officials appear to have resigned themselves to the idea that inflation will remain higher for longer than previously predicted by the central bank. They still believe inflation will fall back to its 2% target sometime next year, but are less confident how long it will take.
Read: The Fed worries that the delta variant could prolong shortages and keep inflation high until 2022
July PCE figures are unlikely to provide much comfort to the Fed. The index is expected to increase by 0.4% and boost the annual increase to 4.2%.
However, as the Fed has made clear, it focuses more on supporting the economy than on worrying about what it considers a temporary inflation attack. If the delta starts to crash into the economy, don’t expect the central bank to relax with gas.
The delta variant “could be an obstacle to the economy that could slow things down,” said Minneapolis Federal Reserve Chairman Neel Kashkari.