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Finally the announcement by the Fed has arrived - they will begin to reduce the pace of their monthly bond purchases, a process known as tapering, as soon as late November. Markets are cheering with the major indexes closed at record highs, or should we be?

A single key word in the Fed statement caused me some concern. The word is ‘expected’. In their statement: “Inflation is elevated, largely reflecting factors that are expected to be transitory”. “Expected to be transitory”, it can also mean elevated inflation may turn out to be unexpectedly lengthier than what we hoped for, right? And this will have impact on consumer spending and the list goes on.

Here is why my view that elevated inflation will persist for some time and we are not out of the woods yet.

The world’s second largest economy, China has zero-Covid approach and the Covid-19 latest resurgence in China is expected to worsen the ongoing problems with the global supply chain. The lockdowns in China, (see latest city Lanzhou in lockdown) could continue to disrupt global supply chain, leading to increase in costs of goods, raising inflation. This economic costs are not limited to within China, but globally as well, which may hamper global economic growth. Furthermore, the zero-Covid approach could worsen debt risks for companies.

As this tough stance towards zero-Covid remains, we can expect rising inflation as a result of global supply chain problems, to persist for a much longer time. Keep your eyes peeled on companies with strong balance sheets and are able to withstand a protracted elevated inflation environment, and companies that can navigate through the tough global supply chain environment. 

What are your thoughts, Tigers? would love to hear from you. 

@Tiger Stars$Tesla Motors(TSLA)$$NASDAQ(.IXIC)$$S&P 500(.SPX)$