What the Federal Reserve Will Do, and How Manufacturers Should Respond

As the meeting of the Federal Reserve on March 15-16 looms, companies across the economic landscape are eagerly awaiting the specifics regarding measures it will take to curb the historic inflation rates currently being seen in the U.S.

In preparation for these actions, many financial entities are making predictions as to what the Fed’s measures may look like. According to Reuters, a few include:

• Morgan Stanley predicts six 25 bps hikes this year. It had previously forecast 125 bps of tightening via four 25 bps rate hikes plus a 25 bps fed funds equivalent runoff of the Fed’s balance sheet.

• UBS now expects 150 bps of tightening this year via six consecutive quarter-point moves from March through November. It had previously forecast 25 bps increases in March and June, then “a potential shift toward an every meeting hike pace”.

• BNP Paribas predicts hikes of 25 bps this year starting in March, resulting in a cumulative 150 bps of tightening.

• Credit Suisse now expects the Fed to hike a cumulative 175 bps this year, beginning with a 50 bps increase at the upcoming March meeting.

Even with these projections, there is still pessimism regarding how effective the Fed’s measures will be given the fraught state of the market — which was already struggling before the Ukraine conflict. According to Goldman Sachs, it predicts that inflation will continue to rise by an annual rate of 3.7%, far above the Fed’s own projections of 2.7%.

While the specifics of these predictions differ, the general consensus is that a bps increase of at least 125 bps from the Federal Reserve can be expected, which will result in higher borrowing costs for consumers and businesses alike. This will be the first rate increase since 2018, and its high probability of occurrence should be enough to get manufacturers across all industrial sectors to begin taking measures to maintain production schedules with minimal disruption or loss of capital.

Additional measures such as the Partstat Inventory Ownership Solution can lock in today’s low inventory prices, all the while minimizing long-term supply chain disruptions such as longer lead times. Moving forward, such actions should be looked upon as the new normal, especially as it relates to acquiring critical electronic components and semiconductors.