Inflation is proving ‘higher and more persistent’

CFOs are worried about inflation as a risk in 2022, and rightly so, it seems.

In a Medium post on Tuesday, Minneapolis Federal Reserve Bank President Neel Kashkari shared his opinion that the U.S. central bank will need to implement two interest rate hikes in 2022. “Inflation has been higher and more persistent than I had expected,” Kashkari wrote.

Core inflation rose by about 4.9% over the past year. The Fed aspires to keep the rate at around 2% every year. This is the first time Kashkari is suggesting a rate increase since joining the Minneapolis Fed in 2016, according to the StarTribune. The Goldman Sachs alum is a former assistant secretary of the U.S. Department of the Treasury. He led the Troubled Asset Relief Program—the federal government’s high-profile response to the 2008 financial crisis. Now at the Minn. Fed, he has a unique view of what’s really going on in the economy.

The Federal Open Market Committee (FOMC), Kashkari said in his essay, faces balancing two opposing risks: 1) the current “transitory” high inflation will cause consumers to expect long-term inflation, and 2) “once the COVID-19 shock finally passes,” the economy may return to a low-growth, low-inflation environment, which he believes is more plausible. 

The first scenario would most likely cause FOMC to “react more aggressively to re-anchor inflation expectations at 2%,” Kashkari wrote. As a result, workers would incur even higher prices and wage erosion, he said. “This is a very painful outcome that I certainly want to avoid,” Kashkari wrote. “If we overreact to the near-term high inflation readings without realizing we were destined to end up back in the low-rate and low-inflation regime we had been in for 20 years, the recovery will have been needlessly slowed and we may have kept millions of Americans on the sidelines. These costs will also be borne by Main Street.”

The “two-sided risks to monetary policy” will require the FOMC to remain data-dependent; and it’s also important for the public to understand “policy is not on a pre-set course,” he wrote.

Policy has contributed to the current environment, Chester S. Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business, told me. “There has been a lot of demand because of an increase in spendable income, particularly in 2020,” Spatt said. This was due, in part, to government efforts to replace income lost amid the pandemic, he said. Spatt served as chief economist of the SEC from 2004 to 2007. “We had many people getting replacement income well over 100%. That kind of helped seed some of the inflation issues, in addition to the broader fiscal and monetary policies,” Spatt said. It also made some workers not to return to their jobs, he said.

In the current labor market, Kashkari noted that demand for workers exceeds the supply. “How long it is going to take for all prior workers to return is unclear,” he wrote. What we do know? The war for talent has led to an increase in wages and compensation. A poll from the New York Times and Momentive of 5,365 U.S. adults conducted Dec. 14-19 found 57% of workers said they received a pay raise. However, 40% said prices have risen faster than their pay. And just 17% said their increase in pay has kept up with inflation.

Although the speed of tapering has increased, and even if demand returns to normal and “consumers rebalance their spending toward services, inflation could remain elevated if supply-chain disruptions persist,” Kashkari noted.

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

By 2025, the social commerce opportunity will nearly triple, according to a report published by Accenture on Jan. 2. Social commerce pertains to an individual's entire shopping experience taking place on a social media platform—beginning with product discovery and ending in the check-out process. Sales made through social commerce in 2021 are expected to reach $492 billion, the report found. Growing at a compound annual growth rate of 26%, Accenture estimates the social commerce opportunity reach $1.2 trillion by 2025. In the U.S., social commerce will reach $99 billion by 2025, Accenture projects. The largest opportunities will be in consumer electronics, apparel, and home decor. Although China will remain the most advanced market both in size and maturity, developing markets like Brazil and India will experience the highest growth, according to the report.

Courtesy of Accenture

Going deeper

In the piece, What these 9 female leaders learned from their allies, published by MIT Sloan Ideas Made to Matter, alumnae who are now leaders in their fields share how mentors and advocates helped to shape their careers. Julia Wada, group vice president of corporate strategy and innovation at Toyota Financial Services, said her support grew out of managerial relationships. "They cultivated and grew my interests and talents," Wada told MIT Sloan.

Leaderboard

Robert “Bob” Ginnan was named CFO at Workhorse Group Inc. (NASDAQ: WKHS), a technology company focused on manufacturing electric-powered delivery and utility vehicles, effective Jan. 4. Ginnan succeeds Greg Ackerson who had been serving as the company’s Interim CFO since September. Ackerson will reassume his role as the company's corporate controller and principal accounting officer.
Ginnan comes to Workhorse with 20 plus years of experience, most recently serving as the CFO for privately held Family RV Group. Later, he was named CEO and managed the sale of the firm to RV Retailer in February 2021. Throughout his career, Ginnan has held positions of increasing responsibility in finance.

Jennifer Kimball was named Interim CFO at WEX (NYSE: WEX), a financial technology service provider, effective Jan. 1. Roberto Simon stepped down as the company’s CFO, effective Dec. 31, to pursue another opportunity. Simon is expected to remain employed by the WEX, serving in an advisory role through April 1. The company has initiated a search for Simon’s successor, with the assistance of Heidrick & Struggles. In addition to her role as Interim CFO, Kimball, who joined WEX in April 2019, will continue as chief accounting officer. She was promoted to the role in August 2020. Prior to joining WEX, Kimball served as chief accounting officer at Syneos Health. She has more than two decades of financial experience. Kimball's previously held key finance roles at inVentiv Health, The Timberland Company, Thermo Fisher Scientific Inc. and PricewaterhouseCoopers.

Shinyoung Park was promoted to CFO at Magnachip Semiconductor Corporation (NYSE: MX), effective as of Jan. 1.  Park succeeds Dr. Young Soo Woo, who stepped down from the position. Park joined Magnachip in 2014 and served as chief accounting officer from March 2020 to December 2021. She previously served as corporate controller from November 2018 to February 2020.  Prior to joining Magnachip, she held various senior advisory and audit service positions for 10 years with Deloitte in Chicago, Illinois, Seoul, South Korea, and London, U.K. 

Esther Rajavelu was named CFO at Fulcrum Therapeutics, Inc. (NASDAQ: FULC), a clinical-stage biopharmaceutical company. Rajavelu brings nearly 20 years of experience in the life sciences sector. She was most recently a senior equities research analyst at UBS Securities, covering small and mid-cap biotechnology companies, following similar positions covering biotechnology and major pharmaceuticals companies at Deutsche Bank and Oppenheimer & Co. Prior to her career in sell-side equities research, Rajavelu spent several years as an investment banker focused on the life sciences sector at firms, including Bank of America Merrill Lynch and EY Capital Advisors. Prior to that, she served as a pharmaceuticals strategy consultant.

Julie Robertson was named CFO at Marathon Gold Corporation (TSX: MOZ), effective March 7. Robertson’s appointment comes following the departure of Hannes Portmann who will be leaving Marathon, effective Jan. 31, for a position with a private company. Robertson is currently the VP of finance and capital projects for Centerra Gold Inc. Between 2006 and 2019 she held a number of increasingly senior roles for Barrick Gold Corporation, at both the corporate level and within Barrick’s capital projects group, culminating in the role of partner, VP and controller. Robertson began her career in the audit practice of PricewaterhouseCoopers LLP.

Overheard

"Bitcoin as an inflation hedge in the minds of many of the younger investors has replaced gold. Digital coins are the new gold for the millennials."

—Jeremy Siegel, professor of finance at the Wharton School, as told to CNBC.