Inflation Could Call for Higher Interest Rates

According to ACT Research‘s Commercial Vehicle Dealer Digest, the longer inflation remains elevated, the more aggressively the Fed will respond with higher interest rates. This strengthens the chances of a sharper decline in economic activity that: 1) results in fewer commercial vehicles (CVs) required to facilitate this subdued activity and 2) will likely exacerbate downward pressure on spot and contract rates, adversely impacting carrier profitability.

“We are already seeing the slowest y/y growth in the money supply (M2) since 1995, and that metric will turn negative in coming months.” Kenny Vieth, president and senior analyst at ACT, said. “Recent economic data are inconclusive: the labor market continues to add jobs at a pace that implies too-hot wage inflation pressures, but the most recent core personal consumption expenditures (PCE) reading indicates inflation may be moderating.”

It is our view the Fed will continue on its course of tighter monetary policy until the data signal unambiguously that inflation is moderating, as still deep-pocketed consumers and businesses drive demand for labor in structurally constrained markets.”

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