Five weeks after dropping its reference to the coronavirus as a weight on the economy, the U.S. Federal Reserve is confronting a challenging new rise in cases that has fueled doubts about the global recovery and is already forcing other central banks to consider retooling their policies.
The daily pace of new infections has more than doubled since the Fed's June 16 policy meeting, when Chair Jerome Powell said that while it was "premature to declare victory" given the appearance of the more infectious coronavirus Delta variant, a decline in infections, hospitalizations and deaths "should continue."
"Do vaccinated people stay off airplanes? That is the downside risk," said Wells Fargo Corporate and Investment Bank Chief Economist Jay Bryson, who is so far maintaining a forecast of 7% economic growth this year. "I don't think any of us are expecting lockdowns like we saw a year ago. The population is not going to stand for that. But you don't have to have lockdowns. You just have to have people saying, 'I am staying home.
The Fed in June signaled it had begun planning a shift to post-pandemic monetary policy, with the risk of rising inflation seen as paramount and some policymakers ready to reduce the Fed's $120 billion in monthly bond purchases and accelerate eventual interest rate hikes.. The bank began its own bond "taper," only to see the country impose new lockdowns that economist feel will force the RBA to reverse course.
Daily deaths of around 200 are "tragic...but not out of proportion to other major health problems" such as auto accidents, said Dr. David Dowdy, associate professor of epidemiology at the Johns Hopkins Bloomberg School of Public Health. Among the core assumptions behind current Fed thinking, for example, is that a full reopening of in-person schooling this fall will free parents to resume work - a process that could now falter and slow the hoped-for recovery of nearly 6.8 million missing jobs.
Wells Fargo's Bryson said he is watching the United Kingdom, with vaccination rates similar to the United States and a large surge in recent infections, for signs of what may be coming.
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