MARCH HOT TOPIC: Uncertain Times

March 22, 2022

       Have you ever overreacted to a situation before knowing the full details? Often times, this is a common response to uncertainty. Spiked by anxiety and fear, we go into panic mode and make decisions that we otherwise might not have made- at least not without serious consideration of all available options. If there is one thing we can confidently say will lead to increased market volatility, it would be uncertainty. You have heard us discuss how the markets react to uncertainty many times, and we are seeing those scenarios in play once again.

       Over the past 12 months, the US inflation level rose at its fastest pace in 40 years. Unlike analyst expectations, this high inflation had little-to-no negative impact on consumer spending, primarily due to the influx of cash from government assistance and rising income. The issue of inflation has been one lingering and many feel that the Fed, who has many tools at their disposal to tighten the money supply, should have acted sooner.

        Fed Chairman, Jerome Powell, stated in his appearance before the U.S. House of Representatives, in early March, that the federal funds rate is still expected to be increased, however the speed and height of the rate increases is still unknown due to the geopolitical developments currently happening. “The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain,” said Powell.¹

       Going into 2022, the service sector was predicted to be the driving force in inflation; however, energy seems to be taking the lead in increased inflation. Recent events impacting oil prices have trickled down to consumers at the gas pump. The full impact of increased oil prices will take time for consumers to feel in other areas, but it is likely that increased transportation costs will reflect in even higher prices in stores.

       Another factor that impacts the monetary policy decisions being made throughout this inflationary cycle is the labor market. Job availability and wages determine how much people are willing to spend on goods and services.

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“We’re getting back to pre-pandemic levels in terms of labor force participation. Job growth is still quite healthy and strong. So things are really good,” said Kathy Jones, chief fixed income strategist at Charles Schwab. “As more people come back to work and participation picks up, the level of wage gains should start to subside a little bit. In terms of the Fed worrying about inflation driven by people making more money, I guess that’s good news.”²

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       We have experienced a great deal of uncertainty in the start of 2022. Raising interest rates on an incremental level will begin to ease some of the pressures from rising inflation. During this time where so many factors hold a weighted influence on the economy, it is important that we focus on the things we know to be true, and not panic about the unknown.

Anna Vajda

Portfolio Strategist

¹Barrabi, Thomas “Fed’s Powell says rate hike coming despite Russia-Ukraine war,” NY Post, Rev. Wed, March 2,2022 9:50am EST, https://nypost.com/2022/03/02/feds-powell-says-ukraine-war-impact-highly-uncertain/.

²Cox, Jeff “February jobs rose a surprisingly strong 678,000, unemployment edged lower while wages were flat,” CNBC, Pub. Fri, March 4, 2022 8:30am EST – Updated Fri, March 4,2022 12:42pm EST, https://www.cnbc.com/2022/03/04/jobs-report-february-2022.html.

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