Global Supply Chain Pressures Easing, New York Fed Index Indicates – Reuters

By Michael S. Derby

The resolution of a U.S. port strike is expected to stabilize global supply chains, potentially contributing to a continued decrease in inflation, according to a report from the New York Federal Reserve.

The central bank’s global supply chain pressure index, which assesses how current conditions compare to historical averages, fell to 0.13 in September. This decline follows an upward shift from -0.96 in April to 0.2 in August.

Since early 2023, global supply chain pressures have remained near or below normal levels. This relative stability has significantly contributed to a decline in inflation, which enabled the Federal Reserve to initiate a cycle of interest rate cuts last month. Disruptions caused by the COVID-19 pandemic were instrumental in pushing U.S. inflation to 40-year highs in 2022.

The risk of escalating inflation had been heightened by a recently suspended strike affecting ports on the U.S. East Coast and Gulf Coast.

Following a government report indicating strong job growth for the previous month, Chicago Fed President Austan Goolsbee expressed optimism on Bloomberg Television. He stated, “You really couldn’t ask realistically for a better report for the economy, coupled with finding out that the port strike is not going to be an extended matter … those are two pieces of very good news for the economy.”

Financial markets had been concerned that a prolonged strike could disrupt trade, potentially jeopardizing the Fed’s outlined path for continued rate cuts.

A recent agreement reached between port operators and the union representing thousands of dockworkers has alleviated a major economic risk and reduced the chances of immediate supply chain disruptions and inflation, according to Joseph Brusuelas, chief economist at RSM US LLP.

Nonetheless, the U.S. economy is not entirely secure. The agreement is tentative, with both parties expected to finalize the details of a new contract by January 15, 2025.

This deadline could worsen supply chain bottlenecks as it coincides with important shipping periods, including post-holiday inventory replenishment, spring product positioning, and preparations for the Chinese New Year. John Donigian, senior director of supply chain strategy at Moody’s, warned that failure to reach an agreement by January could lead to delays and rising costs, impacting consumer prices and market stability.