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Federal Reserve leader expects supply chain problems to last through ’22

The president of the Minneapolis Federal Reserve Bank says supply chain problems are likely to linger and continue to impact the economy.

Neel Kashkari with the Minneapolis Federal Reserve Bank says his staff has talked with many large businesses with complex global supply chains, and he says it’s not clear how long it will take for the supply side to normalize and see people return to the workforce. “Because maybe it’s a factory in Asia that’s shut down, or maybe there are not enough truck drivers. A lot of these different things are happening at the same time and as soon as they put out one small fire, something else flares up in another part of their global supply chain.”

Kashkari told a Wisconsin Bankers Association forum the businesses he spoke with are not optimistic about solving supply chain issues this year. “When I asked them when do you expect your supply chains to get back to normal, most could only venture a guess and say ‘not in 2022, maybe in 2023.’ And of course, with COVID ongoing with new variants such as omicron, it’s really unclear to me now how long it’s going to take for supply chains to normalize.”

Kashkari says he expects demand to normalize much faster than supply.  He says the risk of high inflation exists because of the supply chain and COVID issues but sees no reason why the economy would not revert to the low-inflation environment the U.S. has seen for twenty years once COVID is under control.