The Federal Reserve is finally taking inflation seriously

Fed Chairman Jerome Powell acknowledged yesterday what most business leaders have known for months: inflation has emerged as a serious business problem for the first time in half a century. Powell said the Fed is going to speed up plans to wind down its bond-buying program, and could raise rates three times next year to combat price pressures. He disputed the notion that the Fed has fallen “behind the curve.”

Markets seemed encouraged that the Fed has woken up to the threat.

But if anyone thinks the Fed’s action is going to make inflation less of a problem next year, they are mistaken. Fed policy works with long and variable lags, and Powell’s gradual path probably means no real economic bite until 2023.

In the meantime, most of the folks I talk with think supply chain woes will last well into 2022. And workers with newly discovered clout are determined to see that inflation reflected in their pay packages. That will put more pressure on prices, putting continued pressure on wages, and the cycle begins. While financial markets seem to be signaling relatively modest inflation expectations, the markets have been wrong before. I’d rank this as the number one economic risk of 2022 (although the Omicron virus appears determined to compete for the honor.)

Tomorrow is CEO Daily’s last issue for the year. I invite all readers to send in their own views of the top risks and top opportunities for next year. 2021 turned out to be a year for the history books; what will 2022 look like? Best predictions will get highlighted in tomorrow’s newsletter.

More news below.

Alan Murray
@alansmurray
[email protected]

TOP NEWS

Omicron spread 

Omicron continues to spread, plunging much of the world back into a now-familiar chaos of travel restrictions, vaccine roll-outs, and Christmas cancellations. In the U.S., deaths have hit the grim tally of 800,000 people; in the U.K., cases have just hit the highest daily number since the start of the pandemic—you can see the stats broken down by nation and state here. Coins2Day

Evergrande battle 

The slow-motion implosion of Chinese real estate giant Evergrande continues to ripple through the wider Chinese economy—creditors are now suing the company for $13 billion in overdue payments, even as some bargain hunters are buying into the company's bonds. The company still has $20 billion in outstanding bonds. Wall Street Journal

Reddit IPO

Reddit has filed for a public offering with the SEC—topping off a landmark year for IPOs. The company has provided few details so far on the offering, but said in the summer that its valuation was roughly $10 billion, after raising $400 million from Fidelity. The site has been one of the drivers of the retail investing boom over the last year—and the craze for crypto. Wall Street Journal

Doomsday Glacier 

Scientists are warning of the risks that a glacier the size of Florida on the western edge of Antarctica could be fracturing, setting off a chain of events that could lead to quick and dramatic sea level rise—enough to put major cities at risk. “What we’re seeing already is enough to be worried about,” said one glaciologist. Coins2Day

AROUND THE WATER COOLER

Blue Ribbon 

Coins2Day  puts out a lot of lists—and some companies come up again and again, whether for their size, their vision, or just because they offer their employees a great place to work. And two companies made it onto a grand total of six different lists, from the Most Powerful Women list to the Coins2Day 500 to the Most Admired Companies list. Coins2Day

'Stay Interview'

The 'stay interview' is a newly popular tool for managers in the age of the so-called Great Resignation—a pre-quit check in to ask employees what is working for them, and what needs to change. When it's done well, this interview isn't about performance and 'deliverables', but about the whole employee, says one HR manager—however, another says that once you get to the point where you're conducting these kinds of interventions, alarm bells should be ringing. Coins2Day

Wasabi farms

This fascinating story by Regan Stephens for Coins2Day tackles the rise of sustainable, Icelandic wasabi. Yes, you heard that right. Although few sushi restaurants in the west offer real wasabi, which is expensive to grow due to the need for heat and energy, these engineers hit upon using geothermal power to heat their special greenhouses. There's been one predictable side effect. “I can’t eat sushi unless I have my own fresh wasabi,” says one founder. “Once you go green, you can't go back.” Coins2Day

Union boost 

A push towards unionization is one of the main labor trends this year—along with a huge labor shortage, and high resignation rates. And one think tank is arguing that there are major benefits, across salary and minimum wage, but also for health. Coins2Day

This edition of CEO Daily was edited by Katherine Dunn.