FOMC: Delta Variant Posing ‘Downside Risks’ to Economic Outlook

Slowing vaccination rates and the spread of the Delta variant pose “downside risks” to the economic outlook, according to members of the Federal Open Market Committee. In minutes from the group’s July 27-28 meeting released today, members remarked that uncertainty remains high and that supply disruptions and labor shortages might last for longer than anticipated.

Some members noted that rising COVID-19 cases associated with the spread of the Delta variant could cause delays in returning to work and school and slow the economic recovery. Those members suggested that preparations for reducing the pace of asset purchases should include the possibility that the reductions might not occur for some time. Some participants stressed that the committee “should be patient in assessing progress toward its goals and in announcing changes to its plans on asset purchases.”

Several participants said they remained concerned about the medium-term outlook for inflation and the possibility of the reemergence of significant downward pressure on inflation. Members also expressed concern that there was considerable uncertainty about the likely resolution of the labor market shortages and supply bottlenecks and about the influence of pandemic-related developments on longer-run labor market and inflation dynamics.