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The first Fed official warns that the Delta variant poses a threat to the global recovery

A senior Federal Reserve official has warned of the spread of the Delta coronavirus variant and low vaccination rates in some parts of the world pose a threat to the global recovery as it has ordered caution in removing monetary support for the U.S. economy.

“I think one of the biggest risks to our global growth going forward is that we will prematurely declare victory to Covid,” said Mary Daly, president of the Federal Reserve Bank of San Francisco, in an interview with the Financial Times.

“We’re not going through it pandemic, we are going through a pandemic. “

Daly, who is a voting member of the Federal Open Market Committee this year, it indicated struggles to contain the virus in Japan and other countries. Growing infections and inoculation campaigns inland are restricting economic recovery and could have negative ramifications for the United States, he said.

“It’s the global economy. . . can’t get it. . . higher vaccination rates, they really get Covid in the back [us], then it’s a headwind for U.S. growth, “Daly said.” A good number of vaccinations are tremendous, but look at all the bags where that hasn’t even happened. ”

Daly’s warning came when investors sought safe havens in crowds this week, sending U.S. government bond prices lower. turn up. Treasury yields fell sharply in the result, with the 10-year benchmark trading note at its lowest level since February. World stocks fell Thursday.

Many market participants have attributed the sharp decline in Treasury yields to technical factors. But a growing chorus has expressed concern that the economy will struggle to maintain the burning growth rates that have accompanied the reopening to date, and has predicted that the recent jump in inflation will fall rapidly.

“In the United States the news has been pretty positive, but the global news hasn’t been so positive,” Daly said. “It was good but it wasn’t fantastic. Markets are responding to these things, and this can naturally lower returns because they are assessing the risk here. ”

He added: “What you are seeing is a growing sense of the negative risk to the global economy.”

The Fed June meeting it seems to have been a catalyst for recent market movements. Central bank officials have predicted that they will raise interest rates sooner and more aggressively than they had anticipated earlier this year.

But speaking to the FT, Daly – who is considered one of the most prominent Fed officials – said he should have no doubt that the central bank will adhere to the monetary policy framework it adopted in August 2020. This promises a more lenient approach to weather outpaces inflation in the search for full employment.

«Chair [Jay] Powell said so clearly at his press conference and I think it’s the light to follow here, ”Daly said.“ It’s the message I keep saying: we are fully committed to our framework. That means eliminating employment shortfalls and delivering an average inflation of 2 percent, and it’s still absolutely paramount. ”

Daly’s comments come at a crucial time for the development of Fed policies, as he discusses removing some of the maximum monetary support for the recovery introduced at the start of the pandemic.

Minutes from the June FOMC meeting, released Wednesday, show that some policymakers believe the Fed could soon begin trimming its $ 120 billion a month in asset purchases. But while Daly said the debate around the “decline” was justified, the central bank will have to “keep an eye on long-term goals, which are full employment and price stability, and be truly patient and persevering enough to realize those commitments we have made to the American people. ”

In addition, Daly argued that rising interest rates from their current level close to zero would have to wait until after the asset purchases had been settled. Other more loyal Fed officials have suggested that there could be some overlap.

“We are ready to slow down at the right time,” he said. “So I’d like to see, how’s that going? How does the economy respond to that? Why can we predict, can we project, but we need to know to actually say, ‘oh, OK, now it’s time to move on to the next phase.’ , which discusses the normalization of policies and the rate of fed funds that comes low. “

Daly said the split among Fed officials over how quickly to cut support for the economy, which was revealed in minutes, was healthy as officials brought their “different perspectives.” to the table and did not operate in an “echo chamber”.

For her part, the president of the San Francisco Fed said she is not ready to move into a post-pandemic environment.

“I think there’s always this excitement that ‘Oh, okay: look, vaccinations work, that could be the end.’ But it would be premature to say we’re getting a win here.”


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