AND UKRAINIANS ALL OVER THE
WORLD.
INFLATION IS RISING AT THE
FASTEST RATE IN 40 YEARS.
THE CONSUMER PRICE INDEX THAT
MEASURES THE COST OF A BROAD
RANGE OF GOODS SURGED 7.5%.
PRESIDENT JOE BIDEN SAYS THE
REASON IS QUOTE THE SUPPLY
CHAINS HAVE BEEN CUTOFF AND
ECONOMISTS SAY THE PICTURE IS
MORE COMPLICATED.
HERE IS A LITTLE BIT WHAT
PRESIDENT BIDEN HAD TO SAY ABOUT
INFLATION EARLIER THIS WEEK.
>> FAMILIES ARE GETTING
CLOBBERED BY THE COST OF
EVERYDAY THINGS.
YOU KNOW, I KNOW THE GAS AND
FOOD PRICES ARE UP.
WE'RE WORKING TO BRING THEM
DOWN.
I GREW NEWSPAPER A FAMILY WHERE
THE PRICE AT THE PUMP WAS FELT
IN THE KITCHEN.
SO WHILE WE WORK ON SUPPLY
CHAINS AND WE WORK ON BRINGING
DOWN THE COST OF THE THINGS
WE'RE TALKING ABOUT HAVE GONE UP
SO HIGH WE STILL HAVE OTHER WAYS
WE CAN REDUCE THE BURDEN ON
WORKING CLASS FAMILIES.
>> AND JOINING US ARE DAVID
SEKER CHIEF U.S. MARKET
STRATEGIC FOR MORNINGSTAR.
>> AND PHILLIP BRAUN AN
ECONOMIST AND PROFESSOR OF
FINANCE AT NORTHWESTERN
UNIVERSITY'S KELLOGG SCHOOL OF
MANAGE MANY.
THANK YOU BOTH FOR BEING HERE.
DAVID SEKER YOU HEARD PRESIDENT
BIDEN BLAMING THIS ON SUPPLY
CHAIN ISSUES DUE TO DEMAND AND
THE PANDEMIC.
IS THAT THE FULL STORY?
>> LIKE ANYTHING ELSE THERE'S
MORE TO IT THAN JUST THAT.
YES THE SUPPLY CHAIN DISRUPTIONS
AND THE BOTTLENECKS HAVE BEEN A
LARGE PART OF IT.
BIG PART OF THE INFLATION HAVE
BEEN IN THE CONSUMER DURABLE
AREA AND THE AUTOMOTIVE SECTOR
WHERE THE SHORTAGES WE'VE SEEN
IN SEMICONDUCTORS LOWERED THE
AMOUNT OF SUPPLY AND WITH THE
DEMAND HIGH THAT WE'VE SEEN
PRICES AND WE'RE STARTING TO SEE
THAT LEAK INTO OTHER AREAS.
SOME OF THE AGRICULTURAL
PRODUCTS AND THE FOOD AT HOME
CERTAINLY HAS BEEN RISING AS
WELL.
>> PHILLIP BRAUN PRESIDENT BIDEN
SAYS HE UNDERSTANDS THE PAIN
ESPECIALLY FOR WORKING CLASS
CITIZENS AND HIS ADMINISTRATION
WANTS TO DO SOMETHING WHAT ARE
THE TOOLS THEY HAVE THAT CAN
TACKLE THIS INFLATION?
>> VERY LITTLE.
THE WHITE HOUSE HAS VERY LITTLE
CONTROL OVER INFLATION.
MOST OF IT IS GOING HAS TO BE
MANAGED BY THE FEDERAL RESERVE.
>> AND TO THAT ISSUE, DAVID
SEKER, THERE'S WHISPERS THAT THE
FEDERAL RESERVE WILL MEET AND
RAISE RATES MULTIPLE TIMES.
DO YOU ANTICIPATE THAT
HAPPENING?
>> WE DO.
WHEN YOU LOOK AT THE MARKET I AM
IMPLEMENTED EXPECTATIONS FOR THE
YEAR THEY HAVE REASONED
SUBSTANTIALLY AT THIS POINT, I
THINK THE MARKET IS EXPECTING
NOT ONLY RAISE RATES IN MARCH
BUT RAISE RATES EVERY MEETING
FOR THE REST OF THE YEAR.
>> PHILLIP BRAUN, SHOULD THE FED
HAVE BEEN DOING THIS ALL ALONG?
ARE THEY LATE TO THE TABLE GIVEN
THE FACT THIS HAS NOT BEEN
TRANSITORY IT'S PERSISTED?
>> VERY MUCH SO.
SO THE FEDERAL RESERVE IS BEHIND
THE EIGHT BALL AND TODAY THEY
ARE NOT BEING AGGRESSIVE ENOUGH.
INFLAGHTS IS OUT OF CONTROL.
INFLATION IS OUT OF CONTROL.
THE FEDERAL RESERVE AT THIS
POINT BE INCREASING INTEREST
RATES TARGETS AND ARE NOT.
AND THEY SHOULD BE IN THE FUTURE
INCREASING INTEREST RATE TARGETS
AT A HIGH CLIP.
>> AND PHILLIP BRAUN ARE WE
ANTICIPATING A QUARTER OF A
POINT EACH TIME?
OR HIGHER?
>> UNCLEAR AT THIS POINT.
THEY SAY THEY'RE GOING TO RAISE
RATES IN MARCH.
THE INITIAL EXPECTATION WAS FOR
A QUARTER POINT.
BUT THERE'S SOME PEOPLE TALKING
ABOUT MAYBE HALF A POINT.
>> PHILLIP BRAUN, AS IS ALWAYS
THE CASE IT SEEMS MARKETS TEND
TO GET SPOOKED BY THE WHISPERS
OF RAISING RATES.
HOW DO YOU BELIEVE MARKETS WILL
REACT TO THE INTEREST RATE HIKES
IF THEY COME?
>> THEY'VE ALREADY REACTED AND
THAT IS A CRITICAL THING.
MARKETS TO EFFECT THE ECONOMY,
THE INDUSTRY INCREASE HAS TO BE
A SURPRISE.
AND SO THIS QUARTER POINT PEOPLE
ARE TALKING ABOUT IT'S EMBEDDED
IN THE MARKET ONE OF THE REASONS
THE MARKET HAS BEEN DECLINING.
>> DAVID SEKER DOES THAT MEAN
THAT PERHAPS THERE WON'T BE AN
UNEXPECTED DIP WHEN MARKETS DO
RISE THAT THEY HAVE BEEN
PREPARING FOR THIS BASICALLY?
>> THEY HAVE BUT I THINK THAT IS
JUST ONE FACTOR AMONGST MANY
WHAT WE'VE SEEN IN THE MARKET
DECLINE THIS YEAR.
COMING INTO 2022 WE PUBLISHED WE
THOUGHT THE MARKETS WERE
OVERVALUED ON THE VALUATION
APPROACH COMING INTO THE YEAR WE
NOTED THERE WERE A NUMBER OF
HEADWINDS THE MARKET WAS GOING
TO FACE.
TIGHTENING MONETARY POLICY.
INFLATION RUNNING MUCH HOTTER
THAN EXPECTED.
RISING INTEREST RATES.
AND THEN THE ECONOMY IS GOING TO
BE SLOWING THIS YEAR.
WE STILL EXPECT THE ECONOMY TO
COME IN AT 3.9% ROBUST ON A
HISTORICAL BASIS BUT SLOWER THAN
LAST YEAR.
ALL OF THOSE FACTORS COMBINED
TOGETHER HAS HELPED PUSH THE
MARKET DOWN AND THE GLOBAL
TENSIONS IN UKRAINE ANOTHER RISK
FACTOR WE'VE HAD TO ADD IN.
>> AND DAVID SEKER A LOT OF
COMPETING FACTORS PUSHING AND
PULLING ON THE ENVIRONMENT.
YOU HAVE HIGHER INFLATION AND
RETAIL SALES UP 3.8% FROM
DECEMBER TO JANUARY.
IF AMERICANS SO SO WORRIED ABOUT
INFLATION WHY DO THEY CONTINUE
TO SPEND?
>> YOU HAVE TO REMEMBER WHAT THE
PANDEMIC HAS CAUSED.
OVER THE PAST TWO YEARS WE HAD A
SHIFT IN CONSUMER SPENDING.
SPENDING HISTORICALLY HAD BEEN
MORE FOR SERVICES THAN GOODS BUT
WITH THE PANDEMIC, REALLY NOT
ALLOWING PEOPLE TO GO OUT AND DO
THE THINGS THEY HAD BEEN DOING
IN THE PAST WE SAW A BIG SHIFT
IN THAT SPENDING AWAY FROM
SERVICES AND INTO GOODS.
THAT IS PART OF WHAT IS CAUSING
INFLATION NOW.
NOW, THE GOOD NEWS IS THAT WE DO
BELIEVE THAT INFLATION WILL
START TO MODERATE IN THE SECOND
HALF OF THE YEAR.
OUR OUTLOOK WILL BE AN AVERAGE
OF 3.6% FOR THE FULL YEAR AND
NEXT YEAR WE THINK INFLATION
DIPS BELOW 2% BEFORE IT GOES
BACK TO A 2% AREA AFTER.
>> IT WOULD HAVE TO MODERATE
QUITE A BIT TO GET DOWN FROM
7.5.
>> WHAT AMERICANS FEEL THE
INFLATIONARY PRESSURES MOST?
USED CAR PRICES, CERTAIN SECTORS
THAT AMERICANS THAT ARE REALLY
HIGHER THAN OTHERS?
>> PROBABLY FEEL IT'S MOST AT
THE GROCERY STORE, MEAT, POULTRY
PRICES HAVE GONE UP DRAMATICALLY
THAT IS WHERE THEY FEEL IT THE
MOST.
USED CAR AND NEW CAR PRICES ARE
WAY UP.
BUT IT'S I THINK IN THE GROCERY
STORE WHERE IT'S REALLY FELT.
>> AND DAVID SEKER YOU BROUGHT
UP THE ISSUE OF LABOR SHORTAGES
THERE ARE MORE JOBS THAN FOLKS
TAKING THEM HOW DOES THAT IMPACT
INFLATIONARY PRESSURES AND ARE
WAGING KEEPING UP WITH THE
DEMAND FOR WORKERS?
>> I'M SORRY?
THAT IS TO YOU.
>> OK.
SO, YES, WE ARE SEEING SOME
INCREASES IN THE WAGES RIGHT
NOW.
WE DON'T EXPECT TO SEE LIKE A
WAGE PRICE INFLATION SPIRAL IN
THIS ASPECT.
WE DO THINK THAT AS WAGES ARE
INCREASING IN THE SECOND HALF OF
THIS YEAR AS CONSUMER SPENDING
STARTS TO NORMALIZE AS THE
PANDEMIC RECEDES THIS SPRING
INTO THE SUMMER MORE PEOPLE WILL
GO BACK TO THE SERVICES THEY
HAVE BEEN SPENDING MONEY ON IN
THE PAST.
WE SEE LOTS OF EXCESS CAPACITY
IN THE MARKETS IN THE SERVICES
AREA AND SKPEP TO SEE THE HIGHER
WAGES BRINGING MORE EMPLOYEES
BACK INTO THE WORKFORCE THAT
HAVE BEEN OUT OF THE WORKFORCE
THAT WILL HELP ALLEVIATE THE
INFLATIONARY PRESSURES WE'RE
SEEING RIGHT NOW.
>> WE'LL WATCH FOR THAT ACTION