Global Economy Sinks Deeper into Turmoil as Fed Prepares to Raise Rates

Global Economy Sinks Deeper into Turmoil as Fed Prepares to Raise Rates

Global Economy:-Jason Furman, an economist at Harvard University, said many forecasters had been doing what investors sometimes refer to as “pricing to perfection”: assuming that everything is going to go well, even if that is not the most likely outcome.

“You can look at the individual items: There’s been a lot of, what if inflation in X, Y, Z goes down,” he said. “And not: What if inflation in A, B, C goes up?”

Global Economy Sinks Deeper into Turmoil as Fed Prepares to Raise Rates

Many of the factors prompting economists to mark up their inflation forecasts now are not even tied to scrambled supply chains.

Matthew Luzzetti, chief U.S. economist at Deutsche Bank, recently revised up his inflation projections because rent costs are rising so rapidly in the Consumer Price Index. Between that and wage growth, he thinks high inflation will last unless the Fed intervenes.

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“For a while, inflation forecasters had been anticipating that the goods side of things would return to more normal dynamics” just as service prices, like rent, began to increase, he said. Services prices have indeed picked up, but normalization in good prices keeps getting “pushed out.”

Consumers continue to spend a bigger share of their budgets on goods instead of services — purchases like travel and manicures — compared with before the pandemic. That has meant global producers are still struggling to keep up with demand. Even potentially short-lived disruptions, like the ones now taking place in China, can add to a snowball of delays and shortages.

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Data released this month showed that the U.S. trade deficit hit a record in January, the height of the Omicron wave, in part because of surging imports of cars and energy. The average time to ship a container from a Chinese factory to a U.S. warehouse had stretched to 82 days in February, according to Freightos, a logistics platform, up from 45 days two years before.

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