On Managing Inflation - in the U.S.

Last week, addressing inflation, U.S. Federal Reserve Chairman Jerome Powell shared the following comments:

• “Our goal is to use our tools to get demand and supply back in synch, so that inflation moves down and does so without a slowdown that amounts to a recession

• “I don’t think you’ll hear anyone at the Fed say that that’s going to be straightforward or easy. It’s going to be very challenging. We’re going to do our best to accomplish that.”

• “It’s absolutely essential to restore price stability. Economies don’t work without price stability.”

• “It may be that the actual [inflation] peak was in March, but we don’t know that, so we’re not going to count on it

• “We’re really going to be raising rates and getting expeditiously to levels that are more neutral and then that are actually tight ... if that turns out to be appropriate once we get there.”

For a global perspective on inflation, the following chart presents inflation rates in 23 nations. Argentina is at the high with 55.1%, Japan at the low end with 1.2%, and the U.S. at an 8.5% inflation rate.

OUR TAKE

• With U.S. inflation at its highest level since the 1980s, there is increasing concern that the U.S. Federal Reserve has poorly contained the current trend.

• Factors contributing to the inflation trend include 1) an extended period of low-interest rates, 2) significant government stimulus, 3) global supply chain disruptions and 4) heightened energy/oil prices, brought on by the Russia/Ukraine conflict.

• While inflation may have peaked, reducing inflation will require interest rate hikes and possibly engineering a recession – a process that will extend into 2023.