The highly contagious Delta variant of Covid-19 is racing across the globe, causing a shortage of workers in the United Kingdom and heaping stress on the battered global travel industry. Delta now makes up 83% of sequenced samples in the United States.
On Wednesday, we’ll hear if concerns about Delta have also infiltrated the Federal Reserve’s Open Market Committee. The Federal Reserve will give its monetary policy update at 2:00 p.m. ET, followed by a press conference with Chair Jerome Powell at 2:30 p.m. ET.
The central bank is not expected to make any policy changes. Instead, investors will be listening for clues about the strength of the economic recovery, and how the Federal Reserve is thinking about the future of its stimulus programs.
Powell has consistently said that he expects inflation to moderate. But pressure on the central bank is growing, with some economists arguing that the Fed should start tapering its bond purchases later this year in preparation for interest rate hikes that would help get price rises under control.
Delta makes these decisions even harder.
In the United Kingdom, where Delta is driving a sharp increase in coronavirus cases, there is already some evidence of the former. Supermarkets in some areas ran out of select products last week, and some gas stations ran dry after hundreds of thousands of workers were forced to isolate because of the virus.
“The Delta variant could cause other developed economies, and China, to shut down again. That could snarl already fractured supply chains, putting another drag on economic growth,” said Dan North, senior economist at the insurer Euler Hermes.
In short, the variant has brought more uncertainty.
Economic gut check
US investors will also be treated to an economic status check next week.
But there are signs that the recovery may not be quite as strong as some hoped.
IHS Markit downgraded its global growth forecast for 2021 by 0.2 percentage points to 5.8% last week. At the same time, IHS slashed its prediction for US growth in 2021 from 7.4% to 6.6%, primarily because of weaker consumer and business spending in May.
“The recovery remains on solid footing owing to a nearly complete recission of pandemic containment measures, expansionary fiscal and monetary policies, and restocking of depleted inventories,” IHS said.
IHS expects inflation to prompt the Federal Reserve to taper its asset purchases later this year, and hike the federal funds rate in 2023.
Monday: US new home sales; Earnings from LVMH, Lockheed Martin and Tesla
Tuesday: US consumer confidence; Earnings from 3M, General Electric, UPS, Apple, Google parent Alphabet, Microsoft, Starbucks and Visa
Wednesday: Earnings from Boeing, McDonald’s, Facebook, Qualcomm, Nissan, Barclays, Deutsche Bank and Rio Tinto
Thursday: US Q2 GDP; Earnings from ArcelorMittal, Comcast, Merck, Northrop Grumman, Samsung, Nestle, AB InBev, Volkswagen, Shell, Total, AstraZeneca, Credit Suisse and Airbus
Friday: US personal income and spending; Earnings from IAG, Renault, BNP Paribas, Caterpillar and Exxon Mobil