text: Good morning. Here’s your Early Warning for Thursday, 25 August 2022.ADMIN NOTE: Due to an unavoidable scheduling conflict, today’s Early Warning briefing will start at 1200 Central time. The Daily SA will be livestreamed at its normal time of 0900 Central. – M.S.TODAY’S BRIEFING:READ TIME: 11 mins 21 secondsInFocus: Weekly Economic OutlookInside the BeltwayDomestic INTSUMGeostrategic INTSUMLow Intensity Conflict Activity Rollup & OutlookInFocus: Weekly Economic OutlookThe Federal Reserve kicks off its Jackson Hole Economic Policy Symposium on Friday, and Fed chairman Jay Powell is expected to repeat his previous outlook: it’s too early to say that inflation has peaked and the Fed has to do more to bring down demand to meet reduced supply. Powell is also expected to announce a slowdown in aggressive rate hikes due to weakening economic conditions and, finally, a glimmer of good news on July inflation data.The Fed saw July’s data on inflation as a good sign that acceleration is slowing – that interest rate hikes and a strong dollar policy (relative to foreign currencies) are helping to slow the rate of inflation. The real risk remains that the Fed is limited in its ability to bring down inflation and that the Fed’s target rate of 2% is not only a pipedream but won’t be achieved in a very long time. For one, a reversal of globalization is going to make nearly everything more expensive. As pointed out by Peter Zeihan in his book The End of the World is Just the Beginning, the era of “cheaper, better, faster” is over as globalization is ending and countries near-shore and reshore supply chains. Cheaper labor abroad – including free slave labor – drove down costs and allowed component manufacturers to reduce prices, which allowed corporations to offer lower prices on finished goods. Most of “Made in China” is probably ending. This week, Apple announced they’re moving production of the iPhone 14, Apple Watch, and Macbook out of China to India and Vietnam. Rerouting supply chains and building new manufacturing facilities (or repurposing old ones) is expensive, and we’re at the beginning of this process of supply chain consolidation.Second, labor shortages persist across the country. This week, Western Growers, an association of farms in Arizona, California, Colorado, and New Mexico, again encouraged the Senate to pass the Farm Worker Modernization Bill to increase the number of foreign farm workers. Western Growers says that labor shortages are one factor in driving up food costs. The Labor Force Participation Rate continues to decline as more Americans exit the workforce. Older Americans aging out of the workforce are not being replaced at the same rate, leading to overall worker shortages. As long as the Fed can’t bring more Americans into the workforce, labor shortages will continue to be inflationary. Third: speaking of food prices, higher input costs for energy, fertilizer, and commodities are going to keep prices for virtually everything higher. The shift to “green energy” initiatives, the push for electric vehicles, and reduced global and domestic shipping and transportation emissions will drive higher consumer prices. This week, the Saudis announced that they can (or will) address a slump in crude oil prices by cutting OPEC+ crude oil production. The Biden administration’s policies that undercut American energy independence will ensure foreign dependence and continue to drive prices higher.Fourth, the Fed will be forced into a painful choice if recession indicators prove accurate (which I think they already are). A reversal of the Fed’s rate hiking cycle into a rate cutting cycle is likely to push inflation higher. As long as the Fed keeps hiking interest rates, the U.S. economy will continue slowing, and the Fed will face an option to tackle inflation as Paul Volcker did in the 1980s (causing the infamous double-dip recession) or cutting rates to spur economic growth. A reversal of the Fed’s policy here – the so-called “Fed pivot” – will be inflationary.