Every quarter, Canterbury's Outsourced CIO committee shares their observations of the market that impact the management of our discretionary portfolios in the Canterbury Outsourced CIO Commentary.
The first half of 2021 seems to have gone fairly quickly with vaccinations, a move toward normal life, and good market returns facilitating a smooth transition in the direction of post-pandemic normality. Compared to a year ago, the economic pendulum has swung from dire concerns about the pandemic to more optimism toward containment and economic recovery.
The uneven pace of vaccinations and reopening across regions has led to inevitable constraints in supply chain as well as labor shortages as consumers and businesses try to return to pre-COVID activities. The Federal Reserve and most others are hoping that the current inflation spikes will be temporary and that prices will fall as capacity is added. However, the uncertainty is high, as shortages in inputs from lumber to microchips have pushed up prices on consumer essentials.
While the concerns about inflation are well-founded, the U.S. has not seen year-over-year inflation persist over 4% since the 1980s. Advances in technology and globalization have boosted productivity and kept prices low over the past few decades. The Federal Reserve has been more concerned about deflationary pressures since the 2008 financial crisis, but this time it has hinted at moving to higher rates when they have achieved their objectives of higher average inflation and full employment.