In a time where many meetings are still being canceled or postponed, it was great to see many of you in person at Straight Talk in September. The touch-and-go nature of fall meetings and the format in which we held ours, in-person and an online version, is a microcosm of what the economic outlook looks like as a whole. Many aspects of the economy, such as business travel, are working toward “getting back to normal,” but it’s unclear what normal means anymore. Organizations can save money and reduce risk by having virtual conferences. Consumers are used to more and more daily items being delivered – many like seeing new releases in the comfort of their own homes instead of going to the movies. The labor force participation rate still hasn’t recovered^[1]. Many things were upended by pandemic shifts, and it’s still not clear how the dust will settle. 

The biggest thing on many minds is the inflation rate and whether or not this is expected to persist. Jerome Powell still thinks the inflation pressure we’re dealing with will settle down, but it is unclear when that will happen^[2]. Supply chain disruptions have persisted longer than anticipated earlier this year^[3]. That combined with the fiscal stimulus of the last 18 months and increasing demand is causing prices to spike. Once persistent inflation becomes an expectation, it can often become a self-fulfilling prophesy as businesses start to raise prices anticipating higher input costs. Higher inflation expectations can drive down valuations in equities as future expected cash flows are discounted at a higher rate. Inflation typically has an outsized impact on growth stocks because interest rate assumptions cause discounted cash flow valuations to be much lower for growth stocks as their major cash flows are expected to occur farther into the future^[4]. Also, because labor force participation hasn’t caught up to pre-pandemic levels, we’ve seen times where fewer people were looking for a job than job openings^[5]. This causes upward pressure on wages as employers are required to offer more to hire and retain talent, which then can exacerbate the severity of inflation. If inflation persists, the Fed may not have any choice but to start to raise rates once again earlier than originally anticipated^[3] . 

---

^[1] Labor Force Participation Rate. FRED. (2021, September 3). Retrieved October 1, 2021, from https://fred.stlouisfed.org/series/CIVPART. 

^[2] Davidson, K., & Timiraos, N. (2021, September 30). Powell says Fed Faces ‘difficult trade-off’ if inflation doesn’t moderate. The Wall Street Journal. Retrieved October 1, 2021, from https://www.wsj.com/articles/powell-says-fed-faces-difficult-trade-off-if-inflation-doesnt-moderate-11633017666.

^[3] Timiraos, N. (2021, September 29). Powell says supply-chain bottlenecks could lead to somewhat longer interval of high inflation. The Wall Street Journal. Retrieved October 4, 2021, from https://www.wsj.com/articles/powell-says-supply-chain-bottlenecks-could-lead-to-somewhat-longer-interval-of-high-inflation-11632934764?mod=article_inline.

^[4] Zucchi, K. (2021, September 8). Inflation’s impact on stock returns. Investopedia. Retrieved October 4, 2021, from https://www.investopedia.com/articles/investing/052913/inflations-impact-stock-returns.asp.

^[5] Long, H., Fowers, A., & Dam, A. V. (2021, September 8). Why America has 8.4 million unemployed when there are 10 million job openings. The Washington Post. Retrieved October 4, 2021, from https://www.washingtonpost.com/business/2021/09/04/ten-million-job-openings-labor-shortage/.

---

Ben Tiller, Principle Financial Officer