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The Week Ahead: Rising infections, lower growth expectations. What will the Fed do?

Tom Hudson, Miami Herald on

Published in Business News

Six weeks ago, the coronavirus did not merit a mention in the Federal Reserve’s interest-rate setting committee statement.

The U.S. was reporting fewer than 15,000 new infections per day — some of the lowest numbers since the first weeks of the pandemic more than a year earlier.

When the central bank meets again on Tuesday and Wednesday in the week ahead, it will be confronted with rising infections and slower economic growth expectations.

This summer’s growing surge of COVID-19 infections is different from the spike last summer. There were no vaccines a year ago and many economic restrictions remained in place. Not so this summer. Vaccines are available and pandemic limits have been lifted.

Air travel has more than tripled compared to a year ago. Restaurant dining has returned to pre-pandemic levels. Demand for gasoline is steadily climbing. So are new COVID-19 infections and hospitalizations.

 

Nonetheless, GDP forecasts remain strong by historic standards but have been tempered from the springtime outlook. Slower economic growth shakes investor confidence, especially with the higher inflation consumers are experiencing. These forces challenge the Federal Reserve’s planning for when to reduce its unprecedented support of the economy, and how fast to do it.

Rising its short-term target interest rate won’t be under real consideration by the bank until late next year. Instead, the scheduling and pace of reducing its monthly buying of $120 billion worth of U.S. bonds and mortgage-backed loans remains an open question.

“The path of the economy will depend significantly on the course of the virus,” the Fed statement read in mid-June. With the Delta variant of the germ spreading more, investors will be looking to the central bank for signs it remains patient and confident.

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