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.

Eoin Treacy's view

This sounds like a common-sense conclusion. Everywhere I look around I see evidence of changed plans and lower economic activity. It seems obvious that will feed through into a weaker set of statistics by the time the 3rd quarter ends.

The US government seems content to allow benefits to expire despite the reaction of consumers to the delta variant. That suggests there is a scope for growth to undershoot as well. Against that background, it appears unlikely the Fed will be able to go ahead with tapering plans in the immediate future.


The stock market continues to rebound following the latest volatility spike associated with expiring options. Investors are betting tapering will not go ahead as planned.

There is also the realistic possibility that many of the measures policy makers look at to compute inflation are peaking. New housing starts are back around 2019 levels as are sales, lumber prices have collapsed, wage growth is not exploding on the upside (yet), oil prices are not surging, grains and beans have pulled back and the Dollar has rebounded.

That realisation of peaking inflation may also act as a counterweight to the recent bullishness in the US Dollar Index as it tests the upper side of its range.

If the Fed does in fact signal they are willing to taper early at Jackson Hole next week, it is unlikely to be welcomed by investors.