Given ongoing supply chain challenges caused by an unprecedented demand for goods, the threat of recession due to rising costs and a tight labor market, the U.S. central bank was wise to hike its benchmark interest rate on Wednesday, June 15.
That was according to Flexport’s Chief Economist Phil Levy who headlined the Quad Cities Regional Business Journal’s inaugural Mid-Year Economic Review, held at the Rhythm City Casino, Davenport.
His comments came just hours before the Federal Reserve wrapped up its two-day meeting on interest rates and boosted the level of its benchmark fund rate by 0.75 percentage point to a range of 1.5%-1.75%. That’s the most aggressive hike since 1994. Despite the Fed’s actions, however, Mr. Levy is not optimistic for an economic recovery this year.
Mr. Levy – whose company’s research also informs the market on global trade trends – was addressing a crowd of Quad Cities business representatives as well as a panel of local business and education leaders who also addressed how they were coping with rising costs and a shortage of workers.
The Quad Cities panelists included: Guiyou Huang, president, Western Illinois University; Stacey Moon, operations manager, director of quality assurance, Parr Instrument Co., Moline; John Ruhl, president and designated managing broker, NAI Ruhl Commercial Co., Davenport; Mary Pat Tubb, general manager, John Deere Davenport Works; Rob Woodall, president, Global Rolled Products, Europe and Asia, for Arconic.
In anticipation of the central bank’s actions, Mr. Levy said the hike was the right thing to do and he likened the 0.75 percentage point bump to the Fed “letting off the gas just a little bit” to forestall a recession. The hike was a big one, but not as big as it could have been.
Hours later, the Fed announced the rate hike. In a post-meeting news conference, Fed Chairman Jerome Powell appeared to agree when he told reporters “Clearly, today’s 75 basis point increase is an unusually large one, and I do not expect moves of this size to be common.” He warned however that an increase of between 50 or 75 basis points could come in July.
At the QCBJ’s economic review, Mr. Levy said a number of factors will go into how quickly the nation comes out of the economic downtown. That will depend on how fast the supply chain problems are resolved, how much an overheated labor market cools down and when consumer demands for goods – which skyrocketed during the COVID-19 pandemic – can return to normal levels.
In the short term, Mr. Levy said he doesn’t anticipate the economy turning around quickly or on its own. But it’s possible the Fed’s ongoing actions to get ahead of inflation can help slow it down. The speed at which the nation recovers will depend on how long it takes for the surge in consumer demand and the shortage of workers to get back to normal.
Until that happens, the panel of local leaders remain focused on how they and their organizations are coping with the economic, supply and workforce issues in the pre-pandemic and post-pandemic world.
Nearly all the speakers reported difficulty in filling open positions, coping with inventory shortages caused by supply chain issues and rising costs. WIU’s Mr. Huang also addressed the impact the pandemic and the ongoing economic issues are having on the psyches of university employees. WIU has worked to help via salary increases and other changes designed to raise employee morale on campus, for example, allowing some staff to work from home and offering additional paid days off during the holidays.
At Parr Instrument, Ms. Moon said the challenge is getting people to respond to the call to fill open positions. “We have great success if we get them in the door,” she said. One reason for that, she said, is that the company has worked hard to ensure employees enjoy a good work-life balance.
For Quad Cities union shops, labor challenges also have been top of mind. At Deere & Co., for example, Ms. Tubbs said she leaned heavily on the expertise of social media experts as the two sides worked to reach a contract during the five-week UAW strike last year that impacted John Deere Works and other factories across the nation.
Mr. Woodall helped oversee contract negotiations, said Arconic reached a tentative contract agreement with the United Steelworkers just 13 hours hours before the contract expired. He offered the following advice to the delight of the crowd: “It’s always beneficial when John Deere goes first.”
On a far more serious note, however, he said the company knew it was facing a $10 million loss per week if a strike were to occur. So company and union leaders worked to balance younger workers’ desire for higher pay with the needs of older workers who wanted better health care and retirement benefits. “We talked a lot to John Deere about what to do,” he said.
Those panelists’ responses and others resonated with event attendees including Kelly Young of Russell who said, “This is great for networking with other people and it’s great to hear from local leaders. … We are all experiencing the same problems and challenges.”
Ms. Young added, “I’m hoping for some of the positive things (from Mr. Levy presentation) to come true.”
Mark Ross, of ALM Positioners, based in Rock Island, said, “It’s nice to hear other local leaders talk about the economy and the supply chain issues.”
This was the first year for the QCBJ’s Mid-Year Economic Review. It was presented with the help of the following sponsors: Huiskamp Collins Educational Planning, Travero Logistics and ShiveHattery. Vintage Radio WQUD 107.7 was the event’s media sponsor.
