A wrench may have been thrown in the Federal Reserve’s inflation fight as thousands of Atlantic and Gulf coast port workers have now gone on strike.
The International Longshoremen’s Association, a union of dock and maritime workers, hit the picket lines at midnight on the night of Sept. 30, shuttering ports from Maine to Texas. ILA officials rejected counteroffers from the United States Maritime Alliance that would have provided a nearly 50 percent wage increase, better health care and retirement benefits, and protections regarding automation and semi-automation.
This is the union’s first strike since 1977.
While many anticipate the labor disruption to be short-lived, the work stoppages will affect billions of dollars in daily trade volume, with the potential to rekindle inflationary pressures across the U.S. economy.
Experts warn that the labor dispute could stoke modest price pressures for a host of business and consumer goods, such as automobiles, electronics, food, household furnishings, and more. However, the inflationary impact on the broader economy will depend on its duration, economists say.
Christina DePasquale, an associate professor of economics at Johns Hopkins Carey Business School, says, for example, that if the strike lasts for a week, costs will be negligible. However, if the labor action turns into a one- or two-month walkout, consumers could witness price increases or product shortages.
“And then when those tangible price increases happen, of course we'll see an uptick in inflation,” DePasquale told The Epoch Times.
The inflation resulting from an extended port strike could be “stickier,” she noted.
“This will certainly make it perhaps stickier than we’ve seen it in the past few months. And if it drags on, it could actually even lead to a slight uptick,” DePasquale said.
Core inflation, which strips the volatile energy and food components, has been more challenging for the monetary authorities to tame. The core consumer price index has been stuck at or above 3 percent since April 2021. It has also been a struggle to hold services inflation, holding steady at 4.9 percent, to the central bank’s target rate.
Though goods inflation has plummeted, falling 0.9 percent year-over-year in August, a disruption to trade flows could ignite a reversal, according to David Altig, executive vice president and chief economic adviser at the Atlanta Fed.
Influencing the Federal Reserve
Fed Governor Michelle Bowman, who was the lone dissenting vote at last month’s rate-setting Federal Open Market Committee meeting, has been concerned that worldwide supply chains could be at risk from geopolitical tensions and labor strikes.“In my view, the upside risks to inflation remain prominent,” Bowman said in prepared remarks at a Kentucky Bankers Association event. ”While it has not been my baseline outlook, I cannot rule out the risks that progress on inflation could continue to stall.”
The New York Fed’s global supply chain pressure index has returned to pre-pandemic levels. However, international supply chains have grappled with various developments over the last year, including attacks in the Red Sea, the ongoing drought in the Panama Canal, and the Baltimore bridge collapse.
Should an economic or inflation shock emanate from a prolonged strike, could the Fed employ stimulus or relief measures? Not quite, according to Eric Clark, portfolio manager at Accuvest Global Advisors.
“The Fed can’t fix the inflation problem that would be created from these stoppages,” Clark said.
A number of economic observers, including RSM chief economist Joseph Brusuelas, have downplayed the economic and inflationary implications of the port lockdowns. Brusuelas pointed to ports on the West Coast that are beginning to absorb many redirected imports, though there is debate about capacity limitations.
“The strike by port workers along the East and Gulf coasts of the United States will provide a modest hit to GDP of a little more than 0.1 percentage points per week, or roughly $4.3 billion in lost exports and imports,” Brusuelas said in a note.
Nevertheless, the port strike and the potential escalation of military activity in the Middle East could put Fed policymakers on the edge of their seats, says Mark Malek, the CIO at Siebert Financial.
“I would say that the Fed is probably keeping a hot kettle of coffee on standby, as it measures its next move very carefully,” said Malek in an analytical note.
One reason that monetary officials may be staying up at night is that the labor strife could distort economic data ahead of the Fed’s two-day policy meeting in November. A concern is that port-related companies could lay off workers, lowering employment levels and lifting the unemployment rate higher in the October jobs report.
In recent weeks, the Fed has signaled that it will concentrate more on the maximum employment side of its dual mandate now that inflation is on a sustainable path toward the central bank’s 2 percent.
At the same time, according to Fed Chair Jerome Powell, last month’s jumbo half-point interest rate cut does not indicate that monetary policymakers will be aggressive moving forward.
“We are not on any preset course,” Powell said at a National Association for Business Economics event on Sept. 30.
“This is not a committee that feels like it’s in a hurry to cut rates quickly. If the economy performs as expected, that would mean two more rate cuts this year, a total of 50 [basis points] more.”
According to the CME FedWatch tool, the futures market is overwhelmingly penciling in a quarter-point rate cut at next month’s policy meeting.
