(NewsNation) — The Federal Reserve unleashed its fourth interest rate hike since March on Wednesday, raising rates to a range of 2.25% to 2.5%, its highest level since 2018. This directly affects consumers and businesses amid a period of historic inflation.
Supply chain strategist Zack Strickland, Head of Market Intelligence for Freightwaves, joined “Morning in America” to answer questions from NewsNation viewer Sean Brennan in Florida, who works for a flooring company, on the rate hike and what it means for the supply chain crisis.
Q: First of all, in terms of interest rate hikes, where will we likely see this impact us the most in a real world way?
Strickland: The interest rate hikes take a long time to manifest. A lot of what we look at is, you know, in the supply chain sector ourselves at Freightwaves. And that’s still in this undulation period. We still haven’t fully unfurled all of the bottlenecking that has occurred over the last year and a half. That occurred from a lot of the, you know, the overstimulated economy really, that was driven by consumer demand.
The interest rate hikes are there to really manage long-term spending. A lot of these capital expenditures occurred earlier in the year already.
As businesses were trying to get their hands around what was going to happen next, the demand side forecasts completely fell apart for a lot of the Fortune 500 companies. So their only strategies were simply just to go out and spend a bunch of money trying to figure out where there they can plug the holes.
Viewer Question: There were so many indicators of an economic slowdown right now, with higher borrowing rates. Why are so many industries still facing supply shortages and cost increases? Shouldn’t the Federal Reserve’s policies that are slowing the economy down be a little bit more impactful by now?
Strickland: These interest rate hikes take a long time to manifest throughout the economy, and a lot of those are those bigger expenditures. What we’ve seen over the last year and a half has been driven by consumer demand, which is a very quick sector to grow and also kind of recede.
That’s really what we’re seeing right now is consumption for all these durable goods. As people kind of transitioned to this work-from-home environment, they stopped doing that as much. They’d gone back to services.
Travel is now coming back. And what’s left over, though, is this chaotic mess.
You know, you’ve heard about all the containers coming from China into the United States. Well, there’s still a bunch of those stacked up around our ports. There are still ships piled up around a lot of the ports, especially the ones on the East Coast.
Now, a lot of these companies have shifted their focus, trying to get a lot of these goods into the country. And with the demand erosion showing up, they don’t really have anywhere to put them as warehouses fill up.
There’s still a lot of unfurling to do in the supply chain. I mean, warehouses being almost at full capacity, they have nowhere to put these goods.
Viewer Question: I work in the construction industry, and one of the biggest, impactful topics that we are facing right now is with raw materials. Do you see some stability coming back into the market, and do you see prices dropping further, in particular with lumber?
Strickland: Absolutely. Yeah, stability will return to the market. I think as early as later this year, especially in the construction sector. A lot of what we saw in the construction, especially the housing market, is this pull forward. Everybody knew these interest rate hikes were coming, so a lot of these builders went ahead and place their orders for all these goods, trying to get as much housing inventory in place as they could, before they started to see these interest rate increases.
They knew that the consumers were going to be hit by this, and the way that they’re going to see the mortgage rates rise as well. So they wanted to get as much inventory out. I think a lot of that pull forward really helped congest the supply chains for the construction industry.
I do think, as early as probably the fourth quarter of this year, we’ll start to see those kind of stabilize out in the first part of next year for sure.