Federal Reserve Chairman Jerome Powell said Tuesday he’s unsure if the delta variant of the coronavirus will take a serious toll on the broader U.S. economy, citing the resilience of consumers and businesses throughout the pandemic.
During a virtual question and answer session with students and teachers, Powell said “it’s not yet clear whether the delta strain will have important effects on the economy.”
Powell said, though, “COVID is still with us … and that is likely to continue to be the case for a while.” The outbreak may not weigh heavily on the economy because “people and businesses have improvised and learned to adapt, to live their lives despite COVID,” he continued.
Powell’s remarks come amid growing concern and uncertainty about the impact of surging COVID-19 cases on the country’s economic recovery. While states and cities have forgone lockdowns and business restrictions employed during the first wave of the pandemic, declining consumer confidence and school closures could weigh on further job gains and business activity.
Like Powell, most economists say it’s still too soon to know how the delta variant will affect the economy as a whole. The July jobs report showed a stellar gain of 943,000 jobs last month, but the data was collected before federal health officials first urged all Americans to mask up indoors regardless of vaccination status.
Economic data covering the second half of the month hasn’t shown clear signs of a slowdown yet either.
Retail sales dropped by 1.1 percent in July, far steeper than economists had expected, according to data released Tuesday by the Commerce Department. It’s unclear, however, how much of the slowdown was driven by the delta variant versus the declining impact of fiscal stimulus and a shift away from goods purchased during the pandemic.
At the same time, industrial production rose 0.9 percent and output increased 1.4 percent in July, according to Fed data released Tuesday, despite pre-delta supply chain snarls and shortages of crucial parts.
The uncertainty poses a significant challenge for Powell and the Fed, which is facing intense pressure from both outside and within to begin cutting back on the $120 billion in monthly bond purchases it began during the outset of the pandemic in March 2020. Supporters of a quicker taper say doing so will give the Fed more room to avoid interest rate hikes while inflation remains high, but left-leaning economists and policymakers say it may be too soon to pull back.