The Delta epidemic is raging, Powell bet that the U.S. economy will no longer fall into the quagmire. Provided by FX678

Fed Chairman Powell believes that the U.S. economy has “learned to deal with” the new crown virus and will not fall into a quagmire due to the new wave of epidemics or rising inflation. This view may be challenged in the coming weeks because schools will resume classes and the supply chain is still congested. Unemployment benefits are also gradually withdrawing.

The data released on Thursday (July 29) shows the risks it faces in the future, as the United States faces a transitional period, from relying on federal government assistance last year to an economy whose emergency rescue plan expires and is taken over by private sector revenue.

According to the gross domestic product (GDP) data released by the Department of Commerce on Thursday, US economic output in the second quarter has returned to pre-epidemic levels, and the rebound occurred earlier than many people expected. But the report also showed that personal income declined as federal transfer payments decreased, and the second quarter GDP grew at a rate of 6.5% year-on-year, slightly lower than the Fed’s forecast of 7%.

Large-scale stimulus plans, unemployment assistance, and other payments have resulted in “being better than everyone expected” during the rapid rise of the epidemic last summer.Powell presented this example on Wednesday (July 28), arguing that the impact of each wave of the epidemic on the economy is gradually diminishing.

As concerns about the spread of the Delta variant virus have increased and new warning signs have emerged about the growth prospects of the United States, these government expenditures are disappearing.

Although the GDP in the second quarter was slightly lower than estimated, the Delta virus poses a “significant downside risk,” said Lydia Boussour, chief U.S. economist at the Oxford Institute for Economic Research. She still expects the full-year economic growth rate to be 7% due to supply chain issues. Relief, goods are put on the shelves, and consumers continue to spend.

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

In contrast, Paul Ashworth, chief North American economist at Capital Investment Macros, painted a bleak economic picture. In this picture, the Delta variant virus has become a drag factor, and rising prices have weakened the purchasing power of families. The core personal consumption expenditure (PCE) price index, the inflation indicator in the GDP report on Thursday, surged 6.1% in the second quarter, the highest level since the early 1980s, when the Fed was fighting deep-rooted price increases.

Ashworth said, “As the impact of fiscal stimulus weakens, soaring prices weaken purchasing power, and the Delta variant virus is raging in the south,” economic growth in the second half of this year may slow to only 3.5%.

At a press conference held after the policy meeting on Wednesday, Powell issued a straightforward assessment of the threat of the epidemic to the economy. The Fed policy makers stated in the policy statement that the U.S. economic recovery seems to be still on track, the impact of the virus on the economy continues to weaken, and the economy is making progress in the direction that the Fed may reduce some of its emergency stimulus measures.

Like earlier adjustments, the Fed’s actions this week continue to show that there is still a steady disconnect between the current epidemic and the economic outlook.

Epidemiologists have long warned that the new crown virus will not disappear-in a country with high doubts about vaccines, it is a difficult goal to truly achieve herd immunity-but will be social and economic in the next few years. Part of the background.

The Fed seems to have adopted this view in a series of subsequent measures. Since April, the Fed has no longer regarded the epidemic as a drag on the economy, but has emphasized the role of vaccination. In fact, the Fed said this week that the new crown virus will still be a risk in the future, but it is not a major risk.

Powell told reporters, “We have learned to coexist to some extent.” Although the Delta strain has overcrowded hospitals in some parts of the United States, “a very high percentage of people across the country have been vaccinated, and the vaccine is clearly effective. .. The impact (of the epidemic) may be smaller. There may not be major lockdowns and the like.”

Whether this situation will continue will be known in the late summer and autumn. Some companies have postponed plans to allow employees to return to the office, and the days when passenger traffic in downtown retail stores and restaurants recover during workdays may also be pushed back again and again.

Powell admitted that if the school district delays the reopening of face-to-face courses for a period of time, or if workers who have been forced to take leave wait a few more weeks to return to work, the surge in Delta infections may complicate the situation.

But for now, the epidemic will not undermine the Fed’s plan if the economic outlook has not deteriorated significantly;The Fed expects employment to continue to grow, and it also needs to manage the risk of rising inflation.

Diane Swonk, principal analyst at Grant Thornton, called Powell’s remarks this week “unruly optimism” and cited risks to the prospects he outlined, including the Delta mutant strain and slow progress in finding new jobs for millions of unemployed people. and many more.

Another surge in infections “has delayed some companies returning to the office until later this year,” Swonk wrote. “As Powell pointed out, we are getting used to spending during the epidemic… These spending are supported by fiscal stimulus measures. As we enter 2022, support will weaken.”