Supply chain expert comments on Fed decision to keep rates on hold


The US Federal Reserve increased interest rates ten times in succession over the last 15 months, but this streak has finally come to an end, with interest rates staying on hold.

Whilst many economists say a further rate may follow, we believe that this is not necessary and that the Fed may have already over-shot.

Supply chains adjust, they always do, and although we saw bottlenecks in the supply chain last year, these had fallen to a very large extent.

It is well known that the oil price fell back some time ago, but so have other commodities such as timber — around a third of the price from 18 months or so ago.

US used car prices have fallen from peak, too.

Although both timber and used car prices have bounced back slightly in recent weeks, raising slight concern, they remain well down on peak prices. For these products not to exert inflationary pressure, they don’t need to fall in price, just not rise, and there is no evidence of that.

More importantly, the US money supply has fallen sharply this year.

Remember, what the Fed does now is not likely to have a full impact on inflation for 18 months; in 18 months, inflation is likely to be lower.

The supply chain implications of higher interest rates relate to the cost of working capital. Having products in transit costs money; the higher the interest rates, the greater this cost.

Companies may respond to higher working capital costs by sourcing products closer to consumer markets.

They should also carefully review their trade finance.