Containers are put onto trucks at the Port of Los Angeles in Long Beach, Calif., on Sept. 2, 2021. Supply chains easing after the pandemic have helped bring inflation down even though the economy didn't respond to higher interest rates the way experts expected. But an economy warped by the pandemic has not responded in the usual ways: Employers kept hiring at a robust pace, confounding predictions that the jobless rate would soar.
But through March, improved supply chain performance, by itself or in connection with the greater availability of dockworkers and truck drivers, accounted for 86 percent of the reduction in inflation since 2022, according to calculations by the White House Council of Economic Advisers.identifying “a significant role for supply factors in the run-up and retreat of goods prices.”
The sour public mood, which is at odds with consumer spending data, is taking a political toll. In a recent Gallup poll, only 38 percent of U.S. adults reported having confidence in Biden to do the right thing for the economy, among the worst presidential scores since 2001.Other advanced economies, including Europe and the United Kingdom, also suffered soaring prices in recent years .
It takes time for the Fed’s interest rate increases to affect actions by consumers and businesses. In recent months, as the pandemic’s supply issues have faded, the Fed’s rate hikes have made more of a mark.“It’s essentially been a one-two punch, where initially it was supply-driven, but increasingly it’s been demand-driven,” said Greg Daco, chief economist for Ernst & Young LLP.
Based on previous Fed tightening cycles, the economy should have fallen into recession in the first quarter of 2023, strategists at PGIM Fixed Income told clients in December of that year.Millions of businesses and consumers had taken advantage of ultralow interest rates in the years before the Fed hiked to lock in low-cost credit.