Pro Perspectives 5/3/22

May 3, 2022

As we head into tomorrow's Fed meeting, we've talked about three supply issues that are driving inflation, which the Fed can do nothing about.

1) The reset of wages at the low end of the scale. Not only did the government establish a new living wage through pandemic subsidies, but employers are in a position of weakness to negotiate pay, as they compete in a labor market that now has one job seeker for every two open jobs.

2) The global supply chain disruptions, from the lockdown period has now been exacerbated by war in eastern Europe, and new lockdowns in China.

3) High energy prices, sustained by a self-inflicted supply shortage, by the design of global anti-fossil fuel policies.

These are reasons the Fed will likely not even attempt to raise rates, over the course of this tightening campaign, beyond what are historically normal levels (around 3%).

And I suspect they will be very, very careful and conservative in reducing the balance sheet.

If we get this message from the Fed tomorrow, it should be positive for stocks.

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