U.S. Port Strike Resolution and Inflation Impact

By Michael S. Derby

(Reuters) – The resolution of a U.S. port strike is likely to keep global supply chain pressures calm, aiding in a continued slowdown of inflation, as indicated by an index from the New York Federal Reserve.

The regional Fed bank's global supply chain pressure index, which measures deviations from historical averages, dropped to 0.13 in September, reversing an upward trend from -0.96 in April to 0.2 in August.

Since early 2023, global supply chain pressures have remained around normal or below normal levels, contributing to declining inflation that enabled the Fed to begin its interest rate-cutting cycle last month. Supply chain disruptions during the COVID-19 pandemic were significant in pushing U.S. inflation to 40-year highs in 2022.

The progress in easing inflation was recently threatened by the now-suspended port strike on the U.S. East Coast and Gulf Coast. Chicago Fed President Austan Goolsbee remarked that the labor situation alongside strong job growth was positive for the economy.

There were concerns that an extended strike could reignite inflation by disrupting trade, potentially affecting the Fed's interest rate strategy. The agreement between port operators and dockworkers alleviates risks of a resurgence in supply issues and inflation, noted Joseph Brusuelas, chief economist at RSM US LLP.

However, the economy isn’t entirely secure as the agreement's tentative nature requires a final contract by January 15, 2025. This deadline coincides with important shipping cycles, risking supply chain bottlenecks if an agreement isn’t reached on time, warned John Donigian from Moody's. Delay in finalizing the contract could lead to repeats of cost surges and delays, impacting consumer prices and market stability.