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Delta darkens U.S. Q3 growth views, Fed taper announcement expected in Nov

The U.S. economic rebound has been dented in Q3, partly on the spread of the Delta coronavirus variant, with economists in a Reuters poll also pushing their expectations back to November for when the Federal Reserve announces an impending policy shift.

The median Q3 growth forecast in the Sept. 13-16 Reuters poll was slashed to a 4.4% seasonally adjusted annualized rate from 7.0% just a month ago and well below the second quarter's 6.6% growth, with the range showing lower lows and lower highs.

The Q4 median was chopped to 5.1% from 5.9%.

Nearly 85% of 51 economists who responded to an extra question in the poll said the spread of the Delta variant had a material impact on their quarterly GDP growth forecasts over the last month.

But the growth outlook for next year is a still-robust 4.2%, unchanged from the August poll, and 2.3% in 2023, only a notch lower than the 2.4% predicted last month.

While six respondents still expect an announcement at the conclusion of the Fed's Sept. 21-22 meeting, economic uncertainty due to rising COVID-19 cases and a weak jobs report last month have led most economists to shift their expectations.

Asked about the greater risk to the job market forecasts, a slight majority of respondents said it was to the downside. The unemployment rate was expected to remain above its pre-pandemic level of 3.5% at least until 2023.

Over 60% of respondents expected the taper to begin in December with monthly reductions of $10 billion in purchases of Treasuries and $5 billion in mortgage-backed securities. A majority of economists expected it to end in Q3 2022.

While the consensus showed the federal funds rate would remain unchanged at 0.00%-0.25% until 2023, over one-quarter of respondents, 16 of 56, said the Fed would raise rates next year for the first time in this cycle.

The Core Personal Consumption Expenditures Price Index, which recorded its biggest surge since 1991 in June - was expected to remain above 3.5% per quarter on average for the rest of 2021.

Core PCE inflation was expected to cool slightly but remain above the central bank's 2.0% target at least until 2023.

Reference: Reuters