It’s a fitting day for the Federal Reserve to meet. It comes on a day that the 10-year is back above 1.5%, on a day that gold prices are retreating, and on a day that the Producer Price Index (PPI) just experienced its largest one-year bounce… ever. During the June Federal Open Market Committee (FOMC) Meeting, Federal Reserve Chair Jerome Powell will meet with his team to discuss ways to control inflation, which they have described as “transitory”.
And inflation has definitely arrived. Full stop. We don’t have to argue about it anymore. The “official” numbers are higher than anything that I would have predicted at this point last year. In 2020, the significant threat was a deflationary spiral that would have undermined the U.S. and broader global economy. Now, it’s a question of how we manage massive upticks in supply chain and consumer costs.
The Real Meaning of Transitory
“Transitory” is an academic way of saying, “Not permanent.” They use these terms because it forces you to pick up a dictionary to figure out what they are talking about. And before you can raise your hand after finding the definition, they’ve moved onto a different subject.
There is a growing camp of people who argue that this inflation is not transitory. They anticipate that it is here to say. I find myself wanting to join their camp, but I need to take a step back and try to shake the temptation.
Right now, the middle-of-the-road camp believes that inflation is going to peak in November. That’s a pretty long time away in a world where people are trying to get by paycheck-to-paycheck. And it also coincides with the end of the harvest season in the United States.
“Transitory” Effect on Labor Shortage
As you know, I’m very concerned about our ability to get grains out of farm fields later this year due to a shortage of workers. That worker shortage is hitting every area of the economy. It’s hammering restaurants, it’s hitting trucking firms, it’s impacting the cost of just about everything as companies scramble for talent and try to keep up with spiking demand.
There is a shakeup in the labor environment that the Fed may have overlooked. It is a pretty unprecedented shift in workers. And there isn’t a silver bullet at all. The trucking industry speaks to the insanity of the rising costs. Truckers – especially long-haul truckers – aren’t as willing to get out on the road for cross-state freight hauls. They’re finding jobs in local delivery or construction if they want it.
And while pay continues to rise, fewer people want to be working all the time. There is a broader movement to stay at home more often. Simply put: Rising pay is not enough.
And that’s in every sector. Everyone wants to know what the Fed is going to say about inflation. I want to hear what the Fed has to say about unemployment. The Fed has a dual mandate to control inflation and maximize employment. Until I hear the plan to address this worker shortage when more than 8 million jobs are open, I’m going to be bearish on the Fed’s management.