By Shrutee Sarkar and Indradip Ghosh
BENGALURU (Reuters) – The U.S. economic rebound was hampered in the third quarter, in part due to the spread of the Delta coronavirus variant, with economists in a Reuters poll also pushing back expectations to November for when the Federal Reserve announces an imminent policy change.
Like most countries, the U.S. economy is facing global supply chain disruptions from the pandemic, which have also driven inflation up. But the economic disruption in many parts of the country has been brutal as the Delta variant spreads, especially among people who are reluctant to get vaccinated.
The shift in expectations over the past month as to when the Fed will announce a cut from its $ 120 billion monthly bond purchases was almost as sudden as the unexpected impact of the rally in the quarter. Classes.
For now, most economists say the slowdown in growth will be temporary and have so far made no major changes to the solid outlook for next year.
Despite President Joe Biden’s mandates to get unvaccinated Americans to get vaccinated, children returning to school and some businesses pursuing plans to return to office could further increase the risk of further spread.
“There are growing concerns that a fear of growth is underway in the United States, and at first glance, the sharp drop in our third quarter growth estimates would apparently support this view,” said Ellen Zentner. , chief US economist at Morgan Stanley, who said Delta left a “bad mark” in August.
“Ultimately, the expansion continues to progress, albeit at a slower pace,” she said.
The median growth forecast for the third quarter in the Reuters poll from September 13 to 16 has been cut to a seasonally adjusted annualized rate of 4.4%, down from 7.0% just a month ago and well below of second quarter growth of 6.6%, with the range showing lower highs and lows. .
The median of Q4 was reduced to 5.1% from 5.9%.
Almost 85% of the 51 economists who answered an additional question in the poll said the spread of the Delta variant had a big impact on their forecast for quarterly GDP growth over the past month.
Reuters survey chart on the US economic outlook: https://fingfx.thomsonreuters.com/gfx/polling/akvezqmzmpr/US%20extra%20questions%20graphics.png
But the growth outlook for next year is still strong at 4.2%, unchanged from the August survey, and 2.3% in 2023, a notch below the 2.4% forecast for the month. latest.
In the meantime, the expected timing of the Fed’s tapering announcement has changed dramatically over the past month, in part because inflation also remains high.
Almost three-quarters of respondents, 36 out of 49, said the announcement of the cut would come in November and not this month as previously thought.
“The main problem is that they have reached a plateau (in terms of vaccination) which will be very difficult to increase further, because of a certain segment of the population who simply do not want to be vaccinated”, said Philip Marey, senior. American strategist at Rabobank.
“If there is to be a lot more damage from the Delta (variant) to the economy, then we might see a postponement of the official announcement from November to December or even January.”
While six respondents are still awaiting an announcement after the Fed meeting on September 21-22, economic uncertainty due to the increase in COVID-19 cases and a weak employment report in the month the latter have led most economists to change their expectations.
Reuters poll on the outlook for Federal Reserve cuts: https://fingfx.thomsonreuters.com/gfx/polling/xmvjokrgwpr/Fed%20tapering.PNG
Asked about the increased risk to the labor market forecast, a slight majority of respondents said it was on the downside. The unemployment rate is expected to remain above its pre-pandemic level of at least 3.5% until 2023.
More than 60% of those polled expected the reduction to start in December with monthly cuts of $ 10 billion in treasury bill purchases and $ 5 billion in mortgage-backed securities. A majority of economists expected it to end in the third quarter of 2022.
While consensus has shown that the fed funds rate will remain unchanged at 0.00% -0.25% until 2023, more than a quarter of respondents, 16 out of 56, said the Fed will raise rates l next year for the first time in this cycle.
The basic personal consumption expenditure price index, which recorded its largest increase since 1991 in June, is expected to remain above 3.5% per quarter on average for the remainder of 2021.
Core PCE inflation is expected to moderate slightly but remain above the central bank’s 2.0% target at least until 2023.
(Reporting by Shrutee Sarkar and Indradip Ghosh; Poll by Mumal Rathore, Susobhan Sarkar and Sarupya Ganguly; Editing by Ross Finley and Dan Grebler)