Michael Nagle | Mayor Bloomberg | fake images
Anyone who reads a Fed chairman coining the term “soft” for an economic landing, as Jerome Powell did on Wednesday, as a bullish sign has a transitory understanding of the importance to be placed on trade action in a single day Stocks plunged Thursday after the relief rally, giving up all post-FOMC meeting gains, and more, on track for the worst day of 2022 for stocks.
Now, back to harsh economic reality, on Main Street, small business owners probably weren’t fooled by the false market leader. They have a sobering view of the rest of 2022. More than 80% of small business owners tell CNBC that a recession will hit the US economy this year. The main trade problem they face is inflation, which is driving up the prices they pay for raw materials and other inputs, while they are increasingly fearful of passing on more price increases to consumers.
The Fed’s battle against inflation is not something Main Street has much confidence in at the moment. Only 27% of small business owners are confident in the Fed’s ability to control inflation, according to the recently released CNBC|SurveyMonkey Small Business Survey for the second quarter of 2022, while 70% say that The Federal Reserve’s current rate hike plans will have a negative impact on your business over the next six months.
For Roger Ferguson, former Fed vice chairman and former head of investment giant TIAA, the Fed is doing what it can, but it can’t do much, and the downturn in the market and economic confidence won’t be reversed quickly. He recently told CNBC that the risk of a recession is very high.
Reasons for inflation, including supply chain disruptions, geopolitical impacts from the Russian war in Ukraine, and strong consumer demand in the US driven by pandemic fiscal and monetary policy, can be mitigated with a Federal Reserve that is raising rates, but not entirely controlled.
Even the Fed’s forecast suggests inflation above 2% for at least a couple more years, Ferguson, who is now vice president of the Business Council and Distinguished Fellow for International Economics at the Council on Foreign Relations, told the virtual Small Business Playbook. from CNBC. event on Thursday. “So there should be an expectation that inflation will be a challenge,” he said.
He cited some financial market indicators that expect inflation to remain “stubbornly high” for several years, and while he’s not in that camp, he added, “It would be nice to say inflation will be left behind relatively quickly, but it will be a problem.” , albeit minor, for more than a year, maybe two years.”
He sees signs that inflation may be peaking, but doesn’t expect it to come down sharply.
“We need to get used to inflation at some high levels, not getting worse but not getting better,” Ferguson said.
For small businesses, this means there will continue to be specific materials and commodities where supply will remain tight and inflation high, and while it will appear that inflation may be improving marginally, that will be incremental in the macro sense, and it is not the case. . with each entrance fee. Labor costs will remain high, although wage inflation should also start to decline.
“Powell, in his post-meeting conference, noted that the Fed has tools, as he described, ‘famously blunt’ tools,” Ferguson said.
And while Powell was clear that some factors might be out of his control (such as supply chain performance, covid and war), “he was clear that he sees a credible path to bring inflation down to the target of around 2%, and doing it in a way that’s soft or a ‘soft’ landing,” Ferguson said.
Inflation won’t return to 2% any time soon, and the Fed is under no illusions about it either, but it will slow down and become less of a factor in business decisions, just not generally, or soon.
For small businesses — those that want to start a business today or are already doing so — Ferguson said they should expect “a pretty volatile time.”
Small businesses are a big driver of the economy and job growth, he added, and from supply issues to labor, the long-term outlook is positive if the Fed succeeds in fighting inflation. But before we know the answer to that, the next 12 to 18 to 24 months “may be a little rough,” she said.