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The senior Fed official warns 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 she called for caution in removing monetary support to the US economy.

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

“We are not going through the pandemic, we are going through the pandemic.”


Daly, a voting member of the Federal Open Market Committee this year, pointed to the struggles to curb the virus in Japan and other countries. Surgery of infections and backward vaccination campaigns abroad limited the economic recovery and could have negative consequences for the United States, she said.

“If the global economy. . . can not get. . . higher vaccination rates, really get Covid behind [us], then it’s headwinds on US growth, ”Daly said. “Good numbers on vaccinations are fantastic, but look at all the pockets where that is not yet happening.”

Daly’s warning came as investors sought safe havens in droves this week, sending US government bond prices soaring. Treasury yields have fallen sharply as a result of benchmark 10-year banknote trading at its lowest level since February. Global stocks fell Thursday.

Many market participants attribute the sharp fall in government interest rates to technical factors. But a growing chorus has expressed concern that the economy will struggle to maintain the red-hot growth rates that have accompanied the reopening to date and predicted that the recent jump in inflation will quickly fall away.

“In the United States, the news has been pretty positive, but the global news has not been that positive,” Daly said. “It has been good, but it has not been great. Markets react to these things and it can of course lower interest rates because they appreciate the risk there. ”

She added: “What you have seen is a growing sense of downside risks to the global economy.”

The Fed’s meeting in June appears to have been a catalyst for recent market movements. Central Bank officials predicted they would raise interest rates faster and more aggressively than they had predicted earlier in the year.

But when he spoke to the FT, Daly – who is considered one of the more deaf officials in the Fed – said that there should be no doubt that the central bank would stick to the monetary policy framework it adopted in August 2020. This promised a more lenient approach to temporary inflation surpluses in the pursuit of full employment.

“Chair [Jay] Powell said this so clearly at his press conference, and I think it’s the light to follow here, ”Daly said. “This is the message I continue to say: We are fully committed to our framework. That means eliminating employment shortages and delivering an average inflation rate of 2 percent, and that is still absolutely crucial. ”

Daly’s comments come at a crucial time for Fed policy decision – making, as it discusses the removal of some of the massive monetary support for the recovery introduced at the start of the pandemic.

Minutes from the June FOMC meeting released on Wednesday showed that some politicians believed the Fed could soon begin trimming its $ 120 billion. Dollar pr. Month with asset purchases. But while Daly said the “tightening” debate was justified, the central bank had to “keep an eye on the long-term goals, which are full employment and price stability, and really be patient enough and persevere enough to meet those commitments we have made to the American people ”.

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

“We are ready to step in at the right time,” she said. “So I want to see how it goes? How does the economy react to that? Because we can predict, we can project, but we need to know to actually say, ‘oh, OK, now is the time to move on to the next phase’, which discusses the normalization of policy and the interest rate for funds coming up on a bit. ”

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

For her part, the San Francisco Fed president stated that she is not quite ready to move to a post-pandemic environment.

“I think there is always this tension that ‘Oh goodness: look, the vaccinations work, it may be the end’. But it would be too early to say that we have achieved a victory here. ”

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