The COVID-19 delta variant “matters a lot” in the upcoming Federal Reserve debate about when to start to slow down the $120 billion in monthly bond purchases, Minneapolis Fed President Neel Kashkari said Thursday.
“If the delta variant continues to spread widely, and if it continues to make people cautious about returning to the job market, or if it slows down hiring… that could cause me, at least, to reconsider ‘is it time to taper asset purchases’ or should we be a little more patient,” Kashkari said, during an interview with Minnesota Public Radio.
The delta variant “could be a damper on the economy that could slow things down,” he said. For instance, firms like his own institution are again delaying a return to the office and this will mean loss of income for service firms in downtown Minneapolis, Kashkari said.
On the other hand, if the strong pace of job gains seen in July continues, Kashkari said he will be comfortable starting to taper these asset purchases and move to a more normal monetary policy.
The economy added 943,000 jobs in July and the unemployment rate dipped to 5.4%.
Minutes of the Fed’s July meeting show “most” officials think that tapering will start this year, but some officials urged patience and pointed to the delta variant as a wild card in the outlook.
Krishna Guha, vice chairman of Evercore ISI, said that the minutes were “moderatly hawkish” but didn’t signal that a September taper announcement was a fait accomplis.
Reports from the Wall Street Journal and CNBC on Monday had said sentiment at the Fed had shifted hawkisk and there may be a taper announcement in September.
Guha said he thinks the Fed will stop short and provide “a clear signal in September that a taper decision is coming in November.”
Illustrating the different views on the Fed, St. Louis Fed President James Bullard told MarketWatch on Wednesday he didn’t think that the delta variant would materially slow the U.S. economy.
U.S. stocks were lower Thursday, but off session lows, on investor fears that the Fed will pull back its support for the economy even though growth is bound to slow from the strong 6.5% annual rate seen in the second quarter. The Dow Jones Industrial Average
was down 138 points in late morning trading.