I ordered, and paid for, a new garage door in the first week of February this year. The garage door was finally supposed to be delivered last Monday. It did not arrive, and now we are hoping for next week.
My wife called an airline the other day to deal with some travel issues for a fall trip. The automated “on hold” message said her wait time would be 77 minutes. She decided to hang up and try another time; the issues remain unsolved.
Clients are telling me furniture deliveries are taking three or four months. Headlines say new cars, if they can be found, are flying off the lots and used car prices are about as much as brand new ones.
It sometimes feels like we are collectively caught “on hold’ right now when it comes to consumer goods and services. In the post-COVID world, things we took for granted, like inventory and customer service, pre-pandemic just don’t seem to apply anymore.
I could quote a myriad of recent economic statistics to support my point, but I don’t think I have to, as most of us have experienced these phenomena firsthand by now.
In the post-COVID economy, using economist speak, it turned out to be much easier to stimulate demand than it did to reconstitute supply. Our modern “on-demand” economy is a marvel of technology, transportation and logistics, but as we are finding out, it only takes one glitch in the chain to turn an impressive process into a locked-up mess, and with the productivity of “work at home” dropping through the floor, it seems no one is even picking up the phone any more to listen to customer problems, let alone solve them.
When the balance between demand and supply becomes misaligned, the corrective mechanism in a market economy is price. And since the simplified academic definition of inflation is “too much money chasing too few goods,” the collective disruption in the supply of goods and consumer services was in large part, the message of this week’s Federal Reserve policy guidance and press conference.
In the notes and press conference, the Fed is acknowledging that inflation metrics are exceeding its expectations, but most of the rise in prices is being attributed to broken supply chains and worker productivity impacted by the pandemic, and I think it's fair to say most economists would say it's easier to fix supply than stimulate demand.
If the Fed is entertaining the idea that perhaps it is the unprecedented combination of government stimulus, low interest rates and the new money it is creating to buy bonds causing some or most of the inflationary pressure we are experiencing, I couldn’t discern so from the press conference. So, the policy approach will continue to be full throttle ahead, although guidance was provided that interest rates may now have to rise in 2023 instead of 2024. There was no mention of when the asset purchases, meaning creating new money to buy bonds, may be scaled back.
The supply disruption logic the Fed is using for decision making makes sense to me. I can’t imagine an industry that hasn’t been impacted by the pandemic, and it only takes one link to break a chain. As investors I think we can resign ourselves to a period of high demand, accommodative monetary policy and low interest rates for the time being. It's hard to imagine any other scenario where this combination would not be bullish for stocks. I think a wait and see attitude is warranted for the time being, but it’ll be important to not get complacent as the economic fog from COVID continues to clear.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
