GRAND RAPIDS, Mich. — The Federal Reserve is set to meet Tuesday and Wednesday of this week over growing inflation, although experts do not expect them to recommend raising interest rates.
FOX 17 sat down with Ph.D. Brian Long, who is the director of supply management research at Grand Valley State University.
Long’s monthly survey has been tracking the local industrial market for four decades and his most recent report for May included 51 west Michigan companies.
Long says the local industrial market is rising at an all-time record high. “What we ask people is ‘Are your prices the same, up or down?' And what we have at this present time is practically everybody saying almost every single price in the industrial market is higher than it was a month ago and that is unprecedented. Usually, inflation is limited to particular categories, sometimes half of your categories, but we haven’t had this happen before that practically every single item from services, to raw materials, to components are going up in price and that is unprecedented as far as the history of our survey is concerned,” Long explained to FOX 17 Monday.
Long says chances are we will see the price increases spill over to us, the consumer soon if we haven’t already and it’s due to many factors, the biggest being pent-up demand.
Long says by increasing interest rates, demand slows, which in turn slows the prices at which companies can charge us. However Long isn’t confident the Fed will raise rates right now and says they instead appear to be counting on historical precedent.
“They are assuming that past performance will repeat itself, and it may. Industrial inflation is much higher than it was as we’ve pulled out of previous recessions, and secondly, the stopgap on it was foreign competition, and unfortunately, foreign competition has just as much demand right now as our domestic competition so I’m not sure that’s going to happen this time and that’s the gamble that they are making. I have been in favor of them edging rates up for a long time. The economists refer to this as the ‘Taylor Rule’ which says we should never have allowed rates to stay this low for the simple reason that we get addicted to these low rates and then when they have to go up again, we’re unfortunately not going to be prepared for it.”
Long reminds us that not everything is interest-rate sensitive, like a normal trip to the grocery store where many have already noticed price increases since the start of the pandemic.
As Congress talks about another stimulus check, Long says that would only raise demand more as more Americans would have extra disposable income and would in the long run cause even more inflation.