By Shrutee Sarkar and Indradip Ghosh

BENGALURU (Reuters) – 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 pandemic has caused disruptions in global supply chains, which are also driving up inflation. As the Delta strain spreads, economic disruption has been severe in many areas of the country. This is especially true for those people who may be hesitant about taking vaccinations.

As sudden was the shift in expectation over the last month regarding when the Fed would announce a reduction in its $120 billion monthly bond purchase, as has the abrupt dent in recovery during the current quarter.

Most economists believe the slowdown in growth will last for a while and haven’t made major adjustments to their positive outlook for next year.

Although President Joe Biden has made it clear that he wants to encourage Americans not yet vaccinated, the risks of further spreading could be exacerbated by children returning to school or firms continuing to implement return-to office plans.

“There has been rising concern a growth scare is underway in the U.S., and at first blush the sharp markdown to our third- quarter growth estimates would seemingly support that view,” said Ellen Zentner, chief U.S. economist at Morgan Stanley (NYSE:), who said Delta had left an “ugly mark” in August.

The bottom line is that, although the pace of expansion has slowed down in August, it continues.

In the Sept. 13-16 Reuters poll, the median Q3 growth rate was lowered to 4.4% from 7.0% a month earlier. This is well below 6.6% in the second quarter. The range also shows lower lows than highs.

The median Q4 growth forecast was cut from 5.9% to 5.1%.

A mere 85% of 51 economists that responded to the extra question said the Delta variant’s spread had an impact on their quarter-end GDP growth projections.

Reuters poll graphic on the U.S. economic outlook: https://fingfx.thomsonreuters.com/gfx/polling/akvezqmzmpr/U.S.%20extra%20questions%20graphics.png

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.

The timing of Fed’s taper announcement is now shifting decisively in the last month due to inflation.

Nearly three quarters of all respondents (36 of 49) said that the Fed’s taper announcement would be made in November instead of this month.

Philip Marey (senior U.S. strategist, Rabobank) stated that the main problem with vaccination is they’ve reached a plateau. It will prove very hard to increase vaccines further because there are certain segments of people who don’t want them to.

The formal announcement could be delayed to December, or possibly January if the Delta (variant), causes further economic harm.

Six respondents expect an announcement after the Fed’s September 21-22 meeting. However, most economists have changed their expectations due to economic uncertainty resulting from rising COVID-19 case numbers and weak jobs reports last month.

Reuters poll graphic on the Federal Reserve taper outlook: https://fingfx.thomsonreuters.com/gfx/polling/xmvjokrgwpr/Fed%20tapering.PNG

Asked about the greater risk to the job market forecasts, a slight majority of respondents said it was to the downside. The unemployment rate will remain at 3.5%, which is the level it was pre-pandemic. This should continue until at least 2023.

Respondents predicted the taper to start in December. It would involve monthly cuts of $10B in Treasuries purchases and $5B in mortgage-backed Securities. It was predicted by the majority of economists to finish in the third quarter 2022.

The consensus was that the federal funds rates would not change from 0.00% to 0.2%5% up until 2023. However, more than one quarter of the respondents (16 of 56) said that the Fed will raise rates next year, which is the first increase in this cycle.

Core Personal Consumption Expenditures Price Indice, which experienced its largest surge since 1991 in June, is expected to average 3.5% per quarter through 2021.

Although core PCE inflation is expected to slow slightly, it was still above the 2.0% target by the central banks at least until 2023.