To those grappling with skyrocketing prices, Thomas Tzitzouris has bad news: price hikes aren’t going away anytime soon.
Inflation will continue to be the story of 2022, according to Tzitzouris, head of fixed income research for Strategas Research Partners and the keynote speaker at Providence Business News’ Economic Trends Summit. Addressing virtual attendees during the Feb. 10 event, Tzitzouris painted a bleak economic picture for the year, and even the decade.
To be fair, the whopping 7% consumer price index as of December 2021 will ease off a bit amid upcoming interest rate hikes and other Federal Reserve actions. Strategas predicts core inflation – which does not reflect the cost of food and energy – will fall from the first-quarter rate of 4.5% to 2.6% by the end of 2022. But remnants will linger through the end of the decade, Tzitzouris said.
Even aggressive action by the Federal Reserve can’t completely wipe out this “sticky inflation” because the sources – labor, material and housing shortages – will continue, Tzitzouris said.
And while the Fed raising interest rates will offer some relief on the inflation front, it could also come with a new set of challenges for borrowers, including small businesses.
‘The Federal Reserve is the most politicized it’s ever been in my entire life.’
THOMAS TZITZOURIS, Strategas Research Partners head of fixed income research
“When you use the federal funds to raise rates as a way to tighten monetary policy, you put more of the burden on Main Street,” Tzitzouris said. “Using the federal funds rate as a tool overburdens small businesses, households, auto lenders, student loan borrowers … and adds to wealth inequality.”
Conversely, when the central bank cuts its assets – another tactic to combat inflation – that hits Wall Street more than Main Street by dampening equity markets.
In an ideal world, the Federal Reserve should fight inflation through a combination of interest rate hikes and balance sheet reductions, Tzitzouris said. Federal Reserve Chairman Jerome Powell suggested in a January address that he intends to use both strategies.
But trimming the central bank’s swollen $8.6 trillion in holdings also has consequences for the government bonds bought and sold through the Federal Reserve, which could make federal lawmakers reluctant to follow through on that option, Tzitzouris said.
“The Federal Reserve is the most politicized it’s ever been in my entire life,” he said, adding that the Treasury and Biden administration have greater influence than usual over the central bank and its policy decisions.
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KEYNOTE: Thomas Tzitzouris, head of fixed income research for Strategas Research Partners, speaks during PBN’s Economic Trends Summit on Feb. 10.[/caption]
All this to say the stage is set for a battle in which only one side – either small businesses and households or big corporations and government – can come out on top. And in Rhode Island, where a “structurally impaired” economy means inflation is hitting harder, a strategy that favors Wall Street over Main Street will leave the Ocean State reeling, Tzitzouris said.
He was unconvinced Rhode Island could break free from its “first in, last out” recessionary rut amid comparably unfavorable wages and home prices, not to mention the many borrowers with adjustable-rate loans in danger of default as interest rates climb.
Yet glimmers of hope shine through this bleak future, particularly if the state can capitalize on its industrial and port infrastructure, including the Port of Davisville not far from Tzitzouris’ North Kingstown home. The Smithfield native earned a finance degree from Bryant University and has kept a close eye on his home state throughout his career, even when commuting to Strategas’ New York offices.
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.