WASHINGTON (AP) 鈥� The spread of the COVID-19 delta variant is raising infections, leading some companies and governments to require vaccinations and raising concerns about the U.S. economic recovery.
But on Wednesday, Federal Reserve Chair Jerome Powell injected a note of reassurance, suggesting that the delta variant poses little threat to the economy, at least so far.
鈥淲hat we鈥檝e seen is with successive waves of COVID over the past year and some months now," Powell said at a news conference, "there has tended to be less in the way of economic implications from each wave. We will see whether that is the case with the delta variety, but it鈥檚 certainly not an unreasonable expectation.鈥�
Powell spoke after the Fed ended its latest policy meeting in which it signaled, for the first time since the pandemic began to ease, that the economy is moving closer to the 鈥渟ubstantial further progress鈥� it wants to see before reducing the $120 billion in bonds it is buying each month. Those purchases are intended to lower rates on longer-term consumer and business loans to spur more borrowing and spending.
A reduction in the bond buying, which likely won't start until the end of this year or early next year, would represent the start of a gradual pullback in the Fed's support for the economy. Only when the bond purchases are completed is the Fed expected to begin considering raising its benchmark interest rate from zero, where it's been since the pandemic erupted in March last year.
At his news conference, Powell acknowledged that the quickening spread of the highly contagious delta variant was threatening some areas of the nation where vaccinations are low, and he noted that 鈥渟ome forecasts are for them to rise quite significantly.鈥� And he said that as the virus spreads, some consumers might pull back from the spending that has propelled the rapid rebound from the pandemic recession.
鈥淒ining out, traveling, some schools might not reopen,鈥� he said. 鈥淲e may see economic effects from some of that or it might weigh on the return to the labor market. We don鈥檛 have a strong sense of how that will work out, so we鈥檒l be monitoring it carefully.鈥�
But Powell noted that last summer's wave of infections had inflicted less damage to the economy that many analysts had forecast.
鈥淲e鈥檝e kind of learned to live with it, a lot of industries have kind of improvised their way around it,鈥� Powell added. 鈥淚t seems like we鈥檝e learned to handle this.鈥�
The after its latest policy meeting said that ongoing vaccinations were helping to support the economy. But it dropped a sentence it had included after its previous meeting that said those vaccinations have reduced the spread of COVID-19.
The Fed鈥檚 latest policy statement comes as the economy is sustaining a strong recovery from the pandemic recession, with and spending. That improvement, and a pickup in inflation, are key reasons why Powell and other Fed policymakers are believed to be moving closer toward pulling back their economic support. Consumer prices the biggest increase in 13 years. And a separate inflation gauge the Fed prefers has risen 3.9% in the past year.
Last month's inflation surge marked a fourth straight month of unexpectedly large price increases, heightening fears that higher costs will erode the value of recent pay raises and undermine the economic recovery.
But Powell underscored his belief that recent inflation readings reflect price spikes in a narrow range of categories 鈥� such as used cars, airline tickets, hotel rooms, and car rentals 鈥� that have been distorted by temporary supply shortages resulting from the economy's swift reopening.
The Fed鈥檚 most important inflation measure, Powell stressed, is what it calls 鈥渋nflation expectations鈥� 鈥� what businesses and consumers expect prices to do in the coming months and years. Expectations are important because they can be self-fulfilling: If companies expect their costs to rise, say, 3%, they are likely to raise their own prices by the same amount.
So far, current price increases haven鈥檛 raised inflation expectations much, Powell said.
鈥淎ll the evidence is that it鈥檚 not happening,鈥� he said.
While Powell fielded many questions about inflation, he also said that hiring needed to progress further before the Fed would be ready to dial down its support for the economy.
鈥淐hairman Powell did a very good job of refocusing the discussion on the idea that the Fed is not looking to materially alter its policy until we get at least close to full employment,鈥� said Russell Price, chief economist at Ameriprise Financial. 鈥淪o that what he鈥檚 telling people there is that, that鈥檚 still their primary focus.鈥�
Among Fed watchers and investors, there is some concern that the central bank will end up responding too late and too aggressively to high inflation by quickly jacking up interest rates and potentially causing another recession. Earlier this month, Republicans in Congress .
But at his news conference, Powell said that if 鈥渨e were to see inflation moving up to levels persistently that were above significantly, materially above our goal ... we would use our tools to guide inflation back down鈥� to the Fed's target average inflation of 2% annually.
After a period of broad agreement during the pandemic crisis, the Fed鈥檚 policymakers appear divided over how soon to bein tapering its bond purchases. Several regional Fed bank presidents support tapering soon, including James Bullard of the St. Louis Fed, Patrick Harker of the Philadelphia Fed and Robert Kaplan of the Dallas Fed.
But Powell has said that the central bank wants to see 鈥渟ubstantial further progress鈥� toward its goals of maximum employment and price stability before it would consider reducing the bond purchases. To make up for years of inflation remaining below 2%, the Fed wants inflation to moderately exceed its 2% average inflation target and to show signs of remaining above that level for an unspecified time.
Powell has said the Fed will communicate its intention to taper 鈥渨ell in advance鈥� of doing so. Many economists think that signal will occur in late August or September.
At their two-day meeting that ended Wednesday, Fed officials also discussed the mechanics of paring its bond purchases, including how fast the purchases would be wound down.
The Fed is buying $80 billion of Treasurys and $40 billion of mortgage-backed securities each month in an effort to force down loan rates. Some on the Fed鈥檚 policymaking committee favor tapering the mortgage bond purchases soon, because home prices are soaring and ultra-low loan rates might be overheating demand for homes.
But Powell said he didn鈥檛 agree, suggesting that both Treasury and mortgage bond purchases tend to have similar effects on mortgage rates and other borrowing costs.
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AP Economics Writer Martin Crutsinger contributed to this report.
Christopher Rugaber, The Associated Press
