After months of rising prices, there are growing signs that inflation is peaking. Gas prices have dropped from their high points, supply chain disruptions have slowly unraveled, and commodity prices have fallen from their highs As well. Michael Bright, CEO of the Structured Finance Association, joined Cheddar News' Opening Bell to discuss why this news might not be as great as it sounds. 

Opening Bell

Growing Signs That Inflation May Be Peaking, But It's Still Really High

So here to discuss is Michael, Bright ceo of structured Finance association, Michael, Let's talk about the point the 9.1% inflation rate mark that happened back in June um you know, a lot of people are pointing that as the peak of inflation or is it really too soon to really say if it is or not? Well, there's definitely some indications that that 9.1% is not gonna be repeated and that we could have a little bit of downward pressure on that headline number. Um and really that's a function of gas prices having come down a little bit in the last few weeks. So is 9.1% the new 40 year high. I mean, that's entirely possible, but some of that's more of a parlor game than an actual economic debate. The real economic debate is how long is this gonna last? And and are we at sort of plateau inflation, which I think would be sort of the scarier thing is that um can we actually get that number to start going down? Because 9.1 Is nowhere near acceptable. It's, it's massively higher than the Fed's 2% inflation target. So even if its peak inflation, we have a long way to go. So then are there more specific data points that you are monitoring to determine if inflation is coming down for sure. So, we just had consumer confidence print about 20 minutes ago. It fell for the third month in a row. While you don't ever want to see consumer confidence go down and someone who, you know wants to see the economy grow, um cooling of demand is the idea that the Feds after? So they do want to sort of cool um consumer demand just enough that, you know, it put takes some downward pressure on prices. Um So, you know, the labor market as well is incredibly tight again, You don't want to root for job losses, but a slightly higher unemployment rate in an antiseptic world, where we're just looking at inflation as being the target here, slightly higher unemployment rate with a little bit more slack in the labor market, coupled with a little bit weaker consumer demand, all of that would be indicative of um you know, the Fed actually accomplishing its objective and helping inflation to sort of peak at the end of the day, though, that's all the demand side of the equation. As I think you've been talking about on your show, the supply side is a totally different factor. I mean, you know, we still have global supply chain disruptions, what china decides to do with its covid policy. These are all things that are out of the Fed control. And so, you know, there's a lot of factors that play, which is really why the markets are so volatile. Well, there's a lot of factors that play, but a lot of people are waiting to see what the Fed is gonna do and they're expected to raise the interest rates again by another 75 basis points? So do you think that the inflation path is roughly in line with what the Fed wants? And could this be sort of like the last rate hike given that the the road to inflation is going right now? A lot of people are saying it's gonna happen again in september. Could this one be the last though? Yeah. No, unfortunately, I don't think this will be the last rate hike for the fat. I mean I think that there, I'm gonna go 75 basis points tomorrow. The meeting begins today, its two day meeting. Um they I think the market is expecting that they will also announce tomorrow that Um they're really not going to be giving much more forward guidance. So they're gonna be relying on the data as it comes in um to make further determinations. But uh you can't, again the Fed has to get inflation to 2%. So even if inflation prints next month below the 9.1% that we saw last month, it still has a very long way to go to get down to two now, does that mean the Fed has to raise rates to 9% to get there? Hopefully not. I mean that's not what anybody's expecting. But um I don't think we're done at the end at the end of this week. I think there's probably some more work to do just because this is pretty entrenched. I think consumers minds. Um Like I said, the supply side of the equation is something that's out of control and is only getting marginally better oil is again out of the Feds control and has gotten a little bit better, but still quite painful. And once it, once that seeps into consumer psyche, the Fed really has to get it out, it has to show the market and show consumers that is very serious about inflation. That's its primary mandate if it loses the trust of the market and loses trust as a central bank. So we're probably gonna see a couple more rate hikes. Uh and hopefully the economy cools just a little bit and doesn't go into recession, although that's a pretty tricky landing. I mean, we've got ourselves in quite a difficult situation here. All right. Well, even if inflation does come down, economists predict a slow pace of decline, especially like you said, you got to change people's mindsets. So will consumers continue to feel the effects of inflation even if it does pique and you know, what might that look like when it comes to, you know, everyday prices because we're seeing some prices come down, but only because of these companies are hurting so bad. Yeah, so, um there's a lot of places in our economy where we're short on supply. So let's look at housing as a perfect example. Um Housing prices have gone up astronomically over the last 10 years. Part of that by design. So paradoxically, the Fed actually wanted to increase asset prices to get us out of the recession was caused by the financial crisis and subsequent events including Covid, Well, they succeeded in housing prices are very, very high. The problem is we don't have enough housing supply and when Congress passed an infrastructure bill, I think it missed an opportunity to increase the supply of affordable housing with, you know, funds sent out to local communities to build affordable housing in areas where people need and want to live and so housing is in short supply. They can cool housing prices a little bit through the interest rates, but consumers are still gonna feel the pain, you know, all around on that. Um and then any good that you buy, any goods that you buy, that come through Southeast asia, that come to china again, very prone to disruption there. And as we all know, Ukraine is sort of the breadbasket of europe, really, the breadbasket of much of the world as long as that were ages, you know, hopefully, um this deal that the Turks brokered can, can release some of the grain supply, but These are all things that are just gonna make life difficult for consumers. Um, and so, you know, having inflation and slowing economic growth at the same time is not something that anyone has dealt with since the 70s. Um, it is not a fun situation, is it? There's really no enjoyable policy tools. I hate to say that fighting deflation is fun, but at least you can spend money, you know, Congress can flood the system with cash and the Fed could lower interest rates. That's certainly more enjoyable than having raised interest rates at a moment when consumers are really feeling the pinch already. Unfortunately though a series of factors, including some policy mistakes have us in the situation and so it's gonna take some time for us to work out for. Sure. Yeah. Speaking of taking some time, how long? All right, let's just talk about in the future, what long term effects of this inflation period could there be, will americans still feel the impact after the prices have even come down, just talking about, you know, getting it out of their mindset. I still see a lot of people maybe saving money because they're afraid it could happen again or we don't know what's gonna happen. Yeah, consumers do have a decent amount of money saved partly by design because Congress had been giving them money during the covid crisis. If you really, if you really take a step back, you have a very deep conversation about globalization though and some of its flaws. So I think for the past 20 or 30 years we've really seen the benefits of integrated global supply, chains, where you know, manufacturing can be done, where a little bit cheaper, those, those that flows through to consumers in terms of lower cost, there's a lot of benefits to it, but you know, we all saw factory shut down. I grew up in youngstown, Ohio, I've seen the clear effects of that. I actually think we may be in the midst of a generational shift where some aspects of globalization are being wound back. Um and I hope that it happens in a productive way. I hope it happens in a way where governments say, look, you know, we have exposure to foreign governments, we have exposure to shipping, have exposure decisions, um you know, by, by governments that are not under our purview out of our control. So we need to make some stuff here in the United States as well. You don't need to use punitive tariffs or pound your chest or the xenophobic. Um we do need policies that encourage manufacturing and that type of stuff here. I think um any consumers trying to buy, let's say furniture. Um and it's told, you know, it's going to be nine months because some parts are coming from china, probably would be willing to pay a couple extra dollars for furniture made north Carolina, meet somewhere in the United States. And so I think that um there's a lot of pain that we still have to go through and I don't want to minimize any of it, but I think if we if we can get through it and we learn some of the lessons about how to combine the benefits of a global economy with some of the risks of it. We can maybe maybe manufacture some stuff here. Um, be a little bit smarter about our reliance abroad, not throw away, not throw the baby out with the bathwater, but you know, transform our economy in a productive way and maybe even bring some jobs back in the process. And so I think, I honestly think that's something that we're going through and we're undoing, We're undoing going back a little bit, I should say, on 30 years of a global trend. And so that's partly why it's so volatile and so difficult to sort of see our way through it. Yeah, we definitely need that boost to the economy and to the job market. So good point. There will definitely keep an eye on that Michael Bright ceo of structured finance association. Thank you so much for your insight.