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Economic Preview: Delta variant is making Americans nervous and raising fresh worries about the economy

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While Washington is riveted by the chaotic scene in Afghanistan, Wall Street and Main Street are wondering if the spread of the coronavirus delta variant is going to injure the U.S. economy.

Surveys of consumers show that Americans are quite worried about delta.

One new poll found that anxiety about the coronavirus is the highest since a record outbreak last winter. And a recent reading of consumer sentiment in early August sank to the lowest level in 10 years, even dropping below early pandemic levels.

Senior officials at the Federal Reserve are worried, too.

A pair of Federal Reserve bank presidents said the delta variant could sway their decision on when the central bank should start withdrawing support for the economy. The Fed engaged in a series of unprecedented measures last year to make sure the economy didn’t collapse.

Read: Fed’s Kashkari says delta variant ‘matters a lot’ to his taper decision

Also: Fed’s Kaplan may rethink call for taper if delta variant slows economy

What Americans think or say, however, is not the same as what they do. Ditto for business.

Since delta cases exploded in July, the U.S. economy has continued to grow at a rapid clip. Americans are still flying, driving and traveling in much greater numbers compared to a year earlier. And they are still spending plenty of money.

Businesses, for their part, are trying to hire millions of workers to keep up with the demand. By now most have successfully adjusted to the pandemic and they are preparing for the eventuality that the caseload declines again.

Governments, for their part, aren’t using a heavy hand like they did early in the pandemic to avoid a big relapse in the economy.

“The delta variant poses a risk, but public officials will focus on ramping up vaccinations rather than introduce harsh restrictions as means to contain the latest infection wave,” said Oren Klachkin, lead U.S. economist at Oxford Economics.

The upcoming week will offer more clues on whether the delta variant really began to bite the economy in August. So far the evidence suggests it’s just been nibbling around the edges.

See: MarketWatch Economic Calendar

A pair of IHS Markit surveys on Monday will tell us if there’s been any deterioration in the service or manufacturing sides of the economy. And later in the week the final reading of consumer sentiment in August could reveal if anxiety lessened as the month wore on.

What’s sure to draw the most attention from Wall Street
DJIA,
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this week is the latest snapshot of inflation as measured by the Fed’s preferred PCE price index. The gauge showed inflation rising at a 4% yearly rate in June — the biggest increase since 2008.

Fed officials appear to have become resigned to the idea that inflation will stay higher for longer than the central bank previously predicted. They still think inflation will retreat toward its 2% target by some time next year, but they are less certain how long it will take.

Read: Fed worries delta variant could prolong shortages and keep inflation high into 2022

The July PCE figures are unlikely to give the Fed much comfort. The index is forecast to rise 0.4% and push the yearly increase up to 4.2%.

Yet as the Fed has made clear, it’s focused more on supporting the economy than worrying about what it considers a temporary bout of inflation. If delta does start to slam the economy, don’t expect the central bank to ease up on the gas.

The delta variant “could be a damper on the economy that could slow things down,” Minneapolis Federal Reserve President Neel Kashkari said. 

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