Fed’s Powell doesn’t see delta variant toppling economy

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Milken Institute chief economist Bill Lee and Kroll Institute chief strategist Chris Campbell discuss the Federal Reserve’s decision on rates.

Federal Reserve Chairman Jerome Powell said Wednesday that policymakers at the U.S. central bank see no cause for alarm from the resurgence of COVID-19 cases nationwide, driven by the highly transmissible delta variant.

"What we’ve seen is with successive waves of COVID over the past year and some months now, there has tended to be less in the a way of economic implications from each wave," Powell told reporters during a press conference. "We’ll see whether that is the case with the delta variety. But it’s certainly not an unreasonable expectation."

The spike in new COVID-19 cases has rattled investors, who are worried that rising infections could bring about new lockdown measures and a drawn-out economic recovery. The spread of the delta variant triggered a broad market sell-off last week, with the Dow Jones Industrial Average tumbling more than 700 points for its worst drop since October. 

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Although the U.S. was making solid progress with vaccinations – 69% of adults have received at least one shot, according to the Centers for Disease Control and Prevention – and infections began falling, cases have rebounded recently as the delta variant spreads among the unvaccinated population. 

The U.S. is averaging about 62,000 new daily cases in the last seven days, compared to the 11,000 seven-day average in June, according to the CDC. Given the rise in cases, the CDC on Tuesday urged some vaccinated Americans to begin wearing masks again, a major turnabout from the agency's previous position.  

Powell said the Fed will be "carefully" monitoring the spread of the delta variant and any ripple effect it may have on the nation's economy and its nascent recovery from the pandemic. Some companies – including Google, Apple and Indeed – have already put return-to-office plans on hold as the delta variant spreads, extending the work-from-home period indefinitely. 

"It certainly is plausible that people would pull back from some activities due to the risk of infection," Powell told reporters. "We may see economic effects, or it might weigh on the return to the labor market. We'll be monitoring it carefully."

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His comments came after the Fed's two-day policy-setting meeting, during which officials, as widely expected, held the benchmark federal funds rate at a range between 0% and 0.25%, where it has been since March 2020, when the virus forced an unprecedented shutdown of the nation's economy.

The Fed will also keep purchasing $120 billion in bonds each month, a policy known as "quantitative easing" that's designed to keep credit cheap. 

But in their post-meeting statement, policymakers said the economy had made "progress" toward their goals on employment and inflation, a sign the Fed could be inching closer to scaling back its asset purchases at upcoming meetings. 

"Last December, the committee indicated that it would continue to increase its holdings of Treasury securities … until substantial further progress has been made toward its maximum employment and price stability goals," the Fed said. "Since then, the economy has made progress toward these goals, and the committee will continue to assess progress in coming meetings."

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