The Delta variant has derailed the speed of the economic recovery and will prompt the Fed to delay tapering plans, Guggenheim’s Minerd says

Guggenheim's Scott Minerd speaks in front of a crowd
Scott Minerd in 2019
  • COVID-19 Delta variant is "throwing a wrench into the forward progress of the economy," said Guggenheim's global CIO.
  • The variant is likely to prompt the Fed to take a more cautious approach to the speed of its tapering plan, said Scott Minerd.
  • Wall Street is anxiously awaiting the next few Fed meetings for more clues on the bank's timeline for reducing asset purchases.
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COVID-19's Delta variant has made a material impact on consumer behavior and will delay the Fed's timeline for tapering asset purchases, Guggenheim's global chief investment officer said Wednesday.

Although Fed chief Jerome Powell has said it's not clear yet whether the Delta variant will have important effects on the economy, Scott Minerd said various data points suggest the variant is already having a negative impact on the recovery.

"The Delta variant is throwing a wrench into the forward progress of the economy," said Minerd, citing the July retail sales miss and slumping credit card spending, particularly on areas including restuarants, air travel, and hotels.

He also pointed to last week's unexpected drop off in the University of Michigan Consumer Sentiment survey, which historically moves in tandem with consumption patterns.

While the economic recovery is unlikely to fully reverse, a slowdown in economic activity will mount in the coming weeks, Minerd said.

This in turn will prompt the Fed to take a more cautious approach to the timing and speed of tapering plans, keeping Treasury yields low, he added.

When the Fed does decide to taper, yields could rise, would could change current assumptions underpinning stock valuations, according to Richard Saperstein, Treasury Partners CIO. The Fed's continued support of the economy is typically credited with propping up stock valuations.

Analysts on Wall Street have varying predictions for when the Federal Reserve will announce a plan to taper asset purchases-and when the central bank will go ahead with the plan.

On Thursday, Bank of America pulled forward its taper expectations to November 2021. The firm previously expected the Fed to start a reduction of purchases in January 2022.

BlackRock's Bob Miller, head of Americas fundamental fixed income, said the Fed could announce tapering in September and begin to taper as early as October 2021.




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