US Economy Continues to Improve Despite Delta Variant of COVID

Reports from the Feds show that the economy continues to grow despite the new hiccups caused by the Delta variant of coronavirus. Although a statement made by the Central Bank, actually stated that the growth rate is actually slower than was expected but it was still improving.

It stressed the jobs market growth also, stating that the high inflation rates are only transitory. The same statement said that economic support might soon be withdrawn due to the seemingly improving economy.

Experts have noted that interest rates may begin to rise in 2022 because the rates have been rock bottom all through the pandemic period. The economy has seen significant growth this year after the pandemic, but there are renewed fears that the new case of the delta variant will affect its recovery.

Spending on travel, hospitality and tourism reduced in August, which is directly linked to the increased cases of delta variant. The current inflation rate, which measures the cost of living over time, is at 5.3%; this figure is the highest rate in the past 13years. This figure comes as demand for goods and services surges, supply reduction, and energy prices skyrockets.

FOMC says market has strengthened

However, the Federal Open Market Committee FOMC, a committee in charge of creating monetary policies, comments that the economy has strengthened completely.

“The sectors most adversely affected by the pandemic have improved in recent months, but the rise in Covid-19 cases has slowed their recovery,” it said.

“Inflation is elevated, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to US households and businesses.”

The FOMC has mentioned that it plans to keep the path for economic recovery still open, stating that its improvement largely depends on how the delta variant is handled—adding that monetary policies will be loose until progress on stabilizing the already 5.2% unemployment rate.

Once the progress continues as projected, FOMC stated that the $120 billion monthly bonds would soon be stopped. The monthly bond was brought in to help keep the borrowing rates low. Although this move is still speculative and needs to be done with caution, hence no date has been fixed for removing the support.

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Target is to bring inflation below 2%

Candice Bangsund, a portfolio manager at Fiera Capital, gave his opinion on the matter “While the Federal Reserve has laid the groundwork for an eventual taper [of asset purchases] later this year, the Fed erred on the side of caution given that the macroeconomic landscape has deteriorated somewhat over the last few months,” said

“Preconditions for a formal taper announcement will largely depend on economic conditions over the coming months, with an emphasis on data dependence.”

The federal government has one primary task: to keep the inflation rate below 2% to get the number of employment needed to eliminate the level of unemployment. The government has helped during the pandemic already by slashing interest rates to historic lows and buying government and corporate bonds with billions of dollars.