When Will It Stop?

How long should it take for the Fed to have inflation under control?

Those that believe raising interest rates will immediately put an end to inflation are giving much more power to the Fed than they really have. That is why it is such a balancing act to not do too much too quickly. It takes several months for those interest rates to work through the entire economy.

For the last several years, new building permits have had exponential growth. But in the last few months, we have seen a staggering decline in new development applications being submitted. This is true for apartments as well as homes and town houses. Yet there still is a great demand for the workers to complete projects that are already in the pipeline. In 18 months, we will see unemployment numbers in the construction industry rise significantly.

The projects being built now were approved a year to two ago. They are coming out of the ground to meet demand that is not quite as great as in the immediate past. Lumber and other building supplies have gone down in price substantially.

Another harbinger of inflation was the cost of a shipping container. A year ago, it was $20,000…now it down to $2500. All of this tells us that the economy is cooling. The unemployment rate is a lagging indicator. Building permits, lumber, and shipping container prices are examples of current indicators of demand.

For the past several months the cost of oil was going down. With OPEC deciding to curtail production, price spikes will happen. It couldn’t be a worse time for this to occur as winter approaches. Rising oil prices are not confined to the U.S. but will influence every nation’s economy. What will this do to inflation?

I would suspect that the Fed will continue to raise rates several more times during the rest of this year and the first half of next. By the time we know that we have inflation under control, we may be in a more serious recession than what was anticipated. Once again, we may find ourselves behind the curve.