Economic Slap

“Slap” seems to be an early contender for 2022’s theme of the year.  Even the most casual reader of news knows of the slap heard around the world at this year’s Academy Awards.  Atlas doesn’t condone violence, but one must acknowledge it left one of the most impressive comedians in the modern era relatively speechless.  A consummate professional, Chris Rock understood the show must go on.

Following on this theme, our economy is being slapped with a major surge in inflation.  Not since the early 1980s have prices run up the way they are currently.  Like the merits of Sunday night's slap, a controversial debate rages on regarding the source of inflation.  Did the Federal Government overuse its printing press in the last round of stimulus last year?  Are prices rising because the supply chain disruption hasn’t been resolved?  Is putting the blame on Putin appropriate?  Is big oil taking advantage of global turmoil?  Is the labor market too tight?  The answer is probably yes to all and there are likely other reasons to consider as well.

One potential cure for surging price might also, in part, be a cause of it: the Federal Reserve.  They have been extra loose with monetary policy since the beginning of the coronavirus pandemic.  Now they are stepping in with an effort to stymie instead of stimi.  In this opinion article from Bloomberg, it is argued that the Fed’s initial foray against inflation was underwhelming, and that more upward price pressures are likely.  Since that March 17^th article, expectations of future interest rate hikes have ratcheted up.  Even the Chair Jerome Powell is creating a runway for larger subsequent rate increases.  This is all in an attempt to smack down inflation.

Slaps have consequences however, and many of them may not be directly understood yet.  Will Will Smith become a studio pariah as consumers vote with their wallet at the box office?  How about consumers voting on Jerome Powell’s efforts to slow inflation with higher rates?  Might they save more as rates on savings accounts become more attractive or pay down variable rate loans as they worry about added financing costs?  How will consumption be affected?  All will be revealed in time as the economic show must also go on.