Qwick Takes: Fed taper, energy price spike threaten U.S. growth into 2022

This week, Talking Biz News Deputy Editor Erica Thompson reached out to Qwoted’s community of experts to inquire about Fed’s taper plans and energy price inflation that are threatening U.S. growth.

Check out some of the top commentary:

Troy Vincent, Market Analyst at DTN:

Rising oil and refined fuel prices have a larger impact on inflation in the U.S. than rising natural gas prices but with both pushing higher in recent weeks it is unquestionable that energy prices will continue to keep inflation elevated moving into Q4. Based on the CPI, inflation has been above 5% for four consecutive months, and the last time CPI was this high persistently was in the middle of the 2008 and 1990 recessions. Energy alone accounts for about 2% of that 5% y/y inflation figure.

“Inflation, and particularly the impact of higher energy prices on industrial and manufacturing activity, is one of the key reasons you have seen global GDP growth expectations for 2021 and 2022 slashed in recent weeks. As it is clear that the risk from the Fed’s perspective is shifting from too little to too much inflation this is a very different macroeconomic setup than was seen leading into the 2013 taper tantrum when Y/Y inflation was at just 1.5%.

The outlook for higher interest rates globally certainly calls into question the valuation of certain sectors of global markets like equity shares of growth focused companies, but the relative degree of inflation and the causes of inflation in the lead up to this round of Federal Reserve tapering compared to that of 2013 must be appreciated.

Henry Davies, Associate Director at Turner & Townsend:

Much of the landscape has been a tale of two halves over the last eighteen months: Initially, while we were in the deepest technical recession in almost a century, while simultaneously experiencing surging stock prices and index performance despite millions of people being unemployed.

Today’s environment is a similar paradox: We’re seeing surging costs of fuel, real estate and many other assets, such as lumber. This has led many people to throw around the term “inflation” quite loosely, as part of a narrative surrounding future economic growth. However, in the background, growth forecasts have gradually started to decline and labor force participation rate now still stands at levels not seen since 1975.

Supply chain disruptions ranging from the Texas Freeze, to the British gasoline shortage and even the EverGiven Suez Canal blockage have all had an impact on asset prices. All such events have disrupted production and increased input costs for manufacturers and suppliers.

Prices have grown exponentially for a variety of commodities such as gasoline, lumber and meat. Meanwhile, growth projections for the economy are slowing and there are still many covid-induced restrictions that can further depress consumption and growth in key industries such as: hospitality, travel, tourism and leisure. Soon, suppliers will have to pass on the increased costs to consumers to cover these operating expenses and the revenue they’ve lost from the last two years or risk going into liquidation: either scenario would point to declining macro-consumption, in my opinion.

In summary, we’re in for a bumpy ride: Prices for many assets and commodities will experience wild swings, due to supply-chain disruptions that themselves have come as a result of the pandemic and varying government responses.