text: InFocus: Deteriorating economic expectationsAccording to the Bureau of Labor Statistics (BLS), the consumer price index increased from 7% to 7.5% for the month ending January. The BLS also mentioned that this is the seventh time during the last ten months that the consumer price index (CPI) has increased at least 0.5% month to month. Several economists, including Larry Summers, and banks, including JP Morgan, have started to raise the alarm about the economy in the United States this year. This includes supply chain constraints, commodity price increases, interest rate failures, and inflation warnings. For inflation, consumers have surprisingly revised their expectations moving forward, and for the first time in over 12 months, think we are headed toward a decrease in inflation next month. Despite consumer expectations, economists continue to expect an increasingly inflationary environment throughout Q2 of 2022 at a minimum. They primarily base their expectations on Fed rate increases and the situation in Europe with Russia and Ukraine. In one of former Treasury secretary Larry Summers recent papers, he says that the job market is driving inflation and because current labor market participation is typically associated with “sub-2% unemployment rates,” that “labor market tightness is likely to contribute significantly to inflationary pressure in the United States for some time to come.”On interest rates, the Bank of America now estimates that the Fed will likely raise interest rates at least seven times this year and will conclude increases once rates have achieved a range between 2.75% and 3%. Be warned; if this plays out, the stock market will likely experience a significant correction. To put that increase in perspective, a single year has not experienced an increase that large since 1981. This would mean the fastest increase in interest rates in over 40 years. Chief Economist at Goldman Sachs’ Jan Hatzius expects five hikes during 2022 and mentioned that energy prices would likely continue to increase, although their effect on inflation should dissipate. During the Fed’s latest FOMC minutes released yesterday afternoon, it was suggested that interest rates would be increased during March, May, and June.President of the Federal Reserve Bank of St. Louis, James Bullard, believes the Fed needs to “front-load more of our planned removal of accommodation than we would have previously…We’re in an environment where we can’t just plod along sort of meeting by meeting and do a little bit here, a little bit there.” He also mentioned that action should be taken to reestablish credibility to the Fed. To do this, he suggests the Federal Open Market Committee (FOMC), where he holds a vote, should increase interest rates by at least 1% by July. He doesn’t introduce a plan of action to achieve this goal, instead differing to Jerome Powell’s discretion. Bullard is concerned that if the Fed does not take aggressive, hawkish action, it will depict a central bank not trying to achieve its target inflation goal of 2%. On a side note, Bullard mentioned that he wants the Fed to begin shrinking the balance sheet by Q2. This opinion is largely brushed off by economists and some other Fed officials, who think that the balance sheet should be reduced as soon as tapering has concluded next month. The FOMC minutes gave no direct discussion on plans to reduce the balance sheet, instead only highlighting what the Fed could do.Supply chain woes are expected to continue throughout the entirety of 2022 and until the summer of 2023 at a minimum. Delivery timeframes decreased over the past month but remain significantly elevated compared to their pre-pandemic levels. On an average delivery time scale from the International Monetary Fund (IMF), delivery times are nearly three times greater than in January 2020 and almost two times greater than levels seen during March 2020.