Schools are resuming in several countries, including the United States and Canada, and parents are returning to work outside of their place of residence. This could be the spark to ignite a new economic growth dynamic, though it could also easily be wiped out by a surge in case numbers and hospital admissions that lead to another round of restrictions.
“Either way, the full impact of this latest wave will likely not be clear until October, when data comes in for the next few weeks,” McCreadie said.
And while all investors have sought guidance and guidance from the Fed, he said the central bank itself is largely geared to the economy. Just a few weeks ago, it was widely expected that it would begin throttling its bond-buying program sometime this year, but investors are much less confident in that timeline after a weeklong US labor market report due to the surge in the delta.
Expectations of when the Fed will hike rates are similarly difficult to predict. McCreadie noted that there was a widespread belief in the spring that inflation would force the Fed and interest rates would rise prematurely. But with Jerome Powell’s insistence that the thread of inflation contains many transitory strands, coupled with a recent surge in COVID cases, the prospects for a quick pigeon-to-hawk transition have become far more uncertain.
On the other hand, recent wage growth could become a “sticky” inflation driver, at least when compared to commodities like wood or copper. But when the effects of the phasing out of increased unemployment benefits in the US set in, this trend could be reversed as many employers may be able to recruit without having to “pay”.