By Peter Morici
Even before Russia invaded Ukraine, global supply chains were not expected to heal this year . Thanks to just-in-time manufacturing and international wage arbitrage, complex manufacturing systems that stretch to China and elsewhere in Asia are proving inflexible and predisposed to shortages.
According to Kastle, office occupancy rates remain about half of prepandemic levels . Adjustments in the use of commercial buildings—for example, downsizing office footprints and converting those to alternative uses—and the continued build-out of home workspaces will be costly.
Even with sales declining, home prices are rising 20% a year , because tough zoning and building codes make new construction too expensive within reasonable distances from city centers. Mortgage rates zoomed past 5% in anticipation of Fed tightening but at the current pace of inflation, mortgage rates will have to jump closer to 10% to reasonably align demand with supply.
War on oil
China’s zero COVID policy delayed but did not avoid slower growth and factory shutdowns. Whereas during our pandemic it was tough to get the goods made in China to America, now with COVID plaguing Shanghai, Chinese plants aren’t always making the goods.
Biden continues his war on oil and gas by slashing the federal lands eligible for leasing some 80% , jacking royalty charges 50%, and imposing tougher environmental regulations on drillers .
Even the hawks among Fed officials place the neutral federal funds rate that will neither overheat nor slow the economy at about 2.5% . That’s far too low and only about half of what needs to be done.
To get inflation to 2%, the Fed should raise the federal funds rate at each meeting—approximately every six weeks—a full percentage point. Through the sale of Treasury and mortgage-backed securities, it should similarly push up the 10-year Treasury rate /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -0.21% .
A recession is becoming increasingly likely but the longer we wait, the tougher will be the medicine when we face it.
<STRONG>Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.</STRONG>
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