It is easy to state that recent geopolitical events are now at the top of my list of risks to the outlook for the U.S. economy and the plastics industry. But it is exceedingly difficult to assess this risk and then come up with reasonable probabilities for potential outcomes.
Try as I will, I cannot fully wrap my head around all of the possible risks that arise when a megalomaniac in charge of the world's largest nuclear arsenal goes rogue. I am not alone in my confusion, and I know that widespread confusion is part of Russian leader Vladimir Putin's strategy. Nevertheless, that does not make it any easier to forecast. For the time being, I am in day-to-day mode.
So let's keep it simple and make sure we have a firm grasp on the things we do know. Conditions can and will change quickly, but there are some things about which I am pretty certain — as of today. These are my core issues.
The U.S. economy has been hit recently by two significant supply shocks: the global pandemic and the crisis in Ukraine. Prior to Russia's invasion, the rate of inflation in the U.S. was already at levels we have not seen in decades. After the attack on Ukraine, prices for commodities such as oil, industrial metals and grains spiked.
The specter of a war in Europe notwithstanding, the spike in energy prices exacerbated consumers' rising worries about inflation. Before the invasion and despite the strongest job market the nation has enjoyed in years, U.S. consumer sentiment was trending lower. The latest reading for the University of Michigan's Consumer Sentiment Index represented a 10-year low. Fortunately, there has not yet been much evidence to suggest that consumers were starting to pull back on their spending patterns. But a persistent trend of lower consumer sentiment cannot be ignored indefinitely by either business leaders or politicians because burgeoning negative attitudes might just turn into action.
In an effort to stem the rising tide of inflation, the Federal Reserve Board will start to raise interest rates this month. This will be the first increase in the Fed Funds Rate since 2018, and it will mark the beginning of the end of the most accommodative period of Fed support ever.
It was always going to be a delicate mission for the Fed to increase interest rates just enough to cool inflation but not raise them so much that it resulted in a recession in the U.S. economy. The difficulty of that mission has now been ratcheted up substantially. Due to the restrictions on trade and the tightening of global supply chains, there is widespread consensus that the Russian attack on Ukraine is likely to impede GDP growth in the U.S. and at the same time increase inflationary pressures.