Delta Impact on Consumer Behavior Will Delay Tapering Announcement

Expectations are mounting for a September announcement of tapering plans by the Federal Reserve (Fed), prompted by the strength of the economy and comments from more hawkish members of the FOMC, particularly Boston Fed President Eric Rosengren. We don’t see that happening.

The Delta variant is throwing a wrench into the forward progress of the economy. Although Fed Chair Powell believes that “it’s not yet clear whether the Delta strain will have important effects on the economy,” our read of the latest data suggests that it is already having a negative impact on consumer behavior.

After a large downside miss to July retail sales, spending on COVID sensitive activities such as restaurants, air travel, and hotels has weakened further in August. High frequency indicators of broader consumer activity such as daily credit card spending also show softening over the past few weeks.

The Recovery in COVID-Sensitive Activities Has Stalled

Change Relative to Same Day in 2019

The Recovery in COVID-Sensitive Activities Has Stalled

Source: Guggenheim Investments, Bloomberg, STR. Data as of 8.17.2021 for diners and TSA, 8.7.2021 for hotels.

Surveys also confirm the impact that the Delta variant is having on consumer sentiment. Consumers now expect a more negative economic impact from COVID than they have for several months.