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Inflation estimates for the month of November may come in at eye-popping numbers, but the important thing is not to panic.
That was the message People’s United Bank Chief Investment Officer John Traynor brought to Greater Boston business leaders at a forum Friday.
“We could be viewing the high-water mark with regards to inflation,” he told the Greater Boston Chamber of Commerce’s virtual 2022 economic outlook summit. “[Inflation] could start to ebb next year.”
The latest inflation statistics show prices are certainly climbing rapidly. U.S. consumers paid 6.8 percent more in November compared with a year earlier as surging costs for food, energy, housing and other items left Americans enduring their highest annual inflation rate in 39 years, the Labor Department reported Friday morning.
But fundamentally, Traynor said, the underlying dynamics driving this inflation still look temporary.
How long the current bout of inflation will last has been a matter of strenuous debate in political, business and economic circles.
Disruptions to supply chains and shifts in consumer spending towards goods and away from services has sent some prices up, particularly on imported goods. At the same time, the Federal Reserve’s ultra-low interest rate policies have combined with demographic trends – many Millennials, the largest generation since the Baby Boom, are now entering prime homebuying years – to produce record demand and record run-ups in home prices. And with many workers reconsidering their careers after the clarifying experience of the pandemic, Traynor noted, there are currently too many job openings for too few job-seekers, creating upward pressure on wages.
Fed Chair Jerome Powell began signaling two weeks ago that the central bank could wind down bond-buying programs aimed at boosting the economy and increasing its interest rates far sooner than previously planned.
Fed on Path to Raise Rates Soon
Analysts say easing overall inflation pressures will depend on further progress in normalizing global supply chains. White House officials have said they believe that a series of actions that the administration has taken, from boosting the processing of cargo from the ports of Los Angeles and Long Beach to the release of crude oil from the petroleum reserve, would help defuse inflation pressures.
Some outside economists have begun to echo that view, and Traynor’s.
“November could be the peak of the bad news on inflation,” said Gus Faucher, chief economist at PNC Financial. “We are already starting to see energy prices decline. We are still dealing with dislocations from the re-opening of the economy, but I expect those problems in supply chains and labor shortages in some industries will get worked out over the next year.”
Faucher said he thinks the 12-month consumer inflation figure will decline over the next year and, by the end of 2022, reach a 3 percent annual rate, much closer to the Fed’s 2 percent target.
If inflation doesn’t ease next year, however, investors will likely be “spooked,” Traynor warned.
For now, though, against the backdrop of persistent high inflation, the Fed is expected to announce after it meets next week an acceleration reduction in its monthly bond purchases. Those purchases have been intended to lower long-term borrowing costs.
Doing so would put the Fed on a path to begin raising its key short-term interest rate as early as the first half of next year. That rate has been pegged at nearly zero since March 2020, when the coronavirus sent the economy into a deep recession.
Workforce a Necessary Focus in 2022
Traynor, the People’s United Executive, said current macroeconomic conditions mean businesses need to focus on their workforces in the coming year, and get comfortable with sharing more profits with workers.
“We believe that is going to be healthy for the market. You’re going to be able to hold onto workers more,” he said.
With immigration – both legal and undocumented – low during former President Donald Trump’s administration, the economy is short young workers. And around 3 million people retired from the labor force during the pandemic, Traynor said, in many cases taking substantial institutional knowledge with them.
“I’ve seen this first-hand. I lost one of my portfolio managers. He’s 62. He and his wife went up to their vacation house and said, no we’re not doing this anymore,” he said.
Every manager needs to have a strategy to grow talent within their company, now, Traynor said, and retain current employees. People’s United – soon to merge with Buffalo-based M&T Bank – implemented a strategy like this several years ago, he said, and now he has a cadre of young portfolio managers he’s cultivating for long careers at the bank.
“There aren’t enough people out there to steal,” he said.
Managers need to put a special focus on women in their ranks, he said. There’s no way to avoid the current expectations – however unfair – in American society that push the burden of childcare and household management in heterosexual, two-parent households onto women.
“We need to think about flexibility. Not only how do we hold onto the women that we have – and being flexible isn’t the only thing. We need to make sure they have exciting career paths,” Traynor said. “As a manager I need to make sure they’re moving forward on their career path even if they’re working from home part-time.”
Associated Press writers Martin Crutsinger, Josh Boak, Christopher Rugaber, Tom Krisher, Anne D’Innocenzio and Stan Choe contributed to this report.
