The Aftermath

Mask mandates are being lifted left and right, rush hour is back in action, and the economy seems to be looking up. As we transition into a new normal, something resembling pre-2020 society, the economy’s rebound will be far from linear. 

The current obstacle that many economists are preparing for is inflation. Currently, Jerome Powell, the chair of the Federal Reserve, has stated that he will allow inflation to rise some more while he closely monitors. The Fed hopes to let the economy heal as much as it can before they step in (Clifford, 2021). With this expected rise in inflation, the expenditure projections for essentials such as food, gas, and college education are also rising (Dickler, 2021). Although these predictions seem foreboding, economists are not panicking as they view these price changes as only temporary since “the committee still sees inflation trending to its 2 percent goal over the long run” (Cox, 2021b).

On Wednesday, June 16th Jerome Powell held a press conference addressing the inflation concerns as well as other economic projections. Powell was coming off from the Federal Open Market Committee’s meeting earlier in the week where they discussed the Fed’s stance on these issues. The chairman disclosed that though plenty was discussed during the meeting, there was no clear stance formed on any of the problems. Powell shared that the expectation for price hikes is coming sooner than originally expected; previously, it was 2024 but now they are looking at 2023. Additionally, the inflation expectation rose from 2.4% to 3.4% since March (Cox, 2021b). At this time, there is no certainty how long this inflation will last and the reopening of the economy could trigger inflation to be “higher and more persistent than we anticipate” (Cox, 2021b). Nevertheless, the Fed has continued to emphasize that this inflation is temporary, simply inevitable from the pandemic. However, many are criticizing this stance. 

One of the biggest critics is Wall Street. Though aware that this is not the Nixon era and economists will not allow stagflation to be a repeat offender, speculation is increasing surrounding how much control the Fed is implementing. Purchasing power for consumers is dwindling and frustration is sparking amongst financial authorities. As the Fed continues to prioritize their long term goal, the impact on stocks in the short run is at jeopardy. The relationship between inflation and stocks is inverse, meaning that as inflation projection continues to spike in months to come, stock prices will continue to lower (Joubert, 2021). Many executives are speaking out against the Fed’s relaxed stance on inflation. James McCann, a chief economist at Aberdeen Standard Investments, suggested that the Fed’s recent “change in stance jars a little with [their] recent claims that the recent spike in inflation is temporary” (Cox, 2021b). Additionally, Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, baffles at the Fed’s lack of tapering, stating “you have to start tapering soon to reach the goal” (Cox, 2021b). 

The United States is not the only country facing inflation problems though. Early this month, China reported their highest level of producer inflation in thirteen years (Tappe, 2021). Producer inflation has been the biggest concern in general. It was also reported earlier this month that commodity prices rose 6.6 percent over the year. This was the largest rise they have seen since the Labor Department began tracking it in 2010 (Cox, 2021a). Worldwide, producers are struggling to keep up supply. The most viral example of that is Starbucks withholding production of nearly 25 items until they can regain a proper supply. The reopening of the economy has left the supply chain in a transitory condition. Specifically, American factories have seen a significant increase in the price for goods exchanged between supply chains. For the year, processed goods rose 22 percent and this was largely due to lumber. Additionally, prices for unprocessed goods in the supply chain rose by 58 percent, the largest surge since 1973 (Tappe, 2021).The impact of the economic resurgence has significantly affected the supply chain as they adjust to post-covid consumption.

This issue is dynamic, and as more obstacles present themselves during the transition, the amount of uncertainties and questions needing answers will likely increase. For many people,  patience is lacking after a difficult economic year and many want to put this crisis in the past. Fortunately, economists have a better grasp of the economy than they did in the 80’s but the complexity of it all still remains, especially amongst a global pandemic. Nevertheless, economists are able to look forward with some degree of optimism, accompanied with rising GDP and improved unemployment. The economy’s resilience has been impressive in the past 12 months and it will be compelling to see how it conquers its next challenge of inflation.

Works Cited

Clifford, T. (2021, June 15). Rising oil prices put Fed's Jerome Powell in a tough spot amid inflation worries, Jim Cramer says. CNBC. https://www.cnbc.com/2021/06/15/jim-cramer-rising-oil-prices-put-fed-in-tough-spot-amid-inflation.html. 

Cox, J. (2021a, June 15). Most professional investors agree with the Fed on inflation, Bank of America survey shows. CNBC. https://www.cnbc.com/2021/06/15/inflation-most-pro-investors-agree-with-fed-on-temporary-inflation-bofa-says.html.

Cox, J. (2021b, June 17). The Fed moves up its timeline for rate hikes as inflation rises. CNBC. https://www.cnbc.com/2021/06/16/fed-holds-rates-steady-but-raises-inflation-expectations-sharply-and-makes-no-mention-of-taper.html.

Dickler, J. (2021, June 14). Americans' inflation fears reach a fever pitch as consumer prices rise. CNBC. https://www.cnbc.com/2021/06/14/americans-inflation-fears-reach-a-new-high-after-consumer-prices-jump.html.

Joubert, T. (2021, May 5). How does inflation affect the stock market? IG. https://www.ig.com/en/trading-strategies/how-does-inflation-affect-the-stock-market-210423. 

Tappe, A. (2021, June 15). Key inflation indicator records biggest jump on record. CNN. https://www.cnn.com/2021/06/15/economy/producer-price-inflation-may/index.html.