Delta Variant Reshapes Debate

By Diane Swonk, chief economist, Grant Thornton

The Federal Open Market Committee (FOMC) – the policy setting arm of the Federal Reserve – is scheduled to meet this week. The Fed will continue to welcome the improvement in the economy we have seen since the Fed last met in mid-June. Members will have to acknowledge that inflation has come in even hotter than they had expected in the official statement following the June meeting.

That said, look for Chairman Jay Powell to remain confident in his assertion that the surge we are currently enduring in inflation will be transitory. He will find comfort in the recent drop in everything from lumber to energy and used vehicles prices, all of which have come off the pandemic-induced highs we saw in June and should contribute to a moderation in overall inflation in the months to come.

Sadly, Powell will have to acknowledge the downside risks that are beginning to emerge from the spread of the Delta variant. The hope was that vaccinations would pick up enough to limit infections and contagion. The vaccines do appear to be holding up as expected; the worst outbreaks are among the unvaccinated. That does not preclude breakthrough infections, but it does point to fewer hospitalizations and fatalities.