US Port Strike Introduces Additional Uncertainty to Fed’s Outlook, According to Reuters

By Howard Schneider

NASHVILLE, Tennessee – The COVID-19 pandemic significantly disrupted global supply chains, leaving U.S. Federal Reserve officials with lasting concerns. Initially, they believed the economic repercussions, such as blocked ports and congested shipping routes, would lead to only temporary inflation.

Currently, a strike involving dockworkers on the U.S. East and Gulf Coasts, which began recently, is not anticipated to have severe effects. However, it could still create uncertainty among Fed policymakers as they consider their next interest rate decisions ahead of the central bank’s upcoming meeting.

David Altig, executive vice president and chief economic adviser at the Atlanta Fed, expressed at a National Association for Business Economics conference that a brief strike would likely be manageable. He cautioned, though, that a prolonged interruption in imports could jeopardize falling prices for goods, which have been crucial in keeping inflation in check.

“Any significant reversal in the pricing of durable goods would pose serious concerns for central bankers relying on low goods prices to stabilize overall inflation,” Altig stated.

The strike, called by the International Longshoremen’s Association, is the first of its kind since 1977, leading to port closures from Maine to Texas and halting operations for thousands of workers. While many analysts believe the labor action will be resolved quickly due to its potential impact on commerce, there may be pressure on both the union and employers to negotiate swiftly, possibly drawing federal intervention.

Even if the strike’s duration is short, its effects could ripple through economic data. A two-week disruption would coincide with the period during which government officials collect data for the October U.S. jobs report, potentially skewing the results by showing decreased payroll numbers and an uptick in the unemployment rate, despite striking workers not being factored into unemployment calculations.

“This complicates matters for the Fed,” said Julia Coronado, president of MacroPolicy Perspectives. “The strike has the potential to disrupt economic activity and consumer spending, while also exerting upward pressure on prices.”

Whether this situation will influence the Fed’s upcoming policy meeting remains to be seen, especially with expectations for possible interest rate cuts just following the U.S. presidential election.

Erin McLaughlin, a senior economist at the Conference Board, warned that if the strike extends into early November, it could force consumers to be more cautious with their spending, given the lessons learned about supply chain vulnerabilities during the pandemic.

Former Cleveland Fed President Loretta Mester noted that if the strike concludes within a normal timeframe, it likely won’t affect policy decisions. However, she acknowledged its potential impact on prices and the labor market if the situation drags on.