Could Recent Black Swan Events Reignite Inflation?

Hurricanes, Middle East conflict and port disruptions could also weigh on economic growth.

Several significant events have impacted the United States and the world since the Federal Reserve cut interest rates by 50 basis points on September 18. Would the Fed have made a different decision if it knew what was to come?

Marcus & Millichap national director of research and advisory services John Chang posed this question in a recent research video. Eight days after the rate cut, Hurricane Helene ravaged the Southeast and just a few days later, Israeli ground forces entered Lebanon, eliciting a military response from Iran. The unrest in the Middle East could put upward pressure on oil prices that could in turn increase inflation and weigh on economic growth, a potential prelude to recession, said Chang. Meanwhile, Hurricane Milton has caused considerable damage to Florida, which at this early stage has not been assessed.

In addition, a labor dispute halted inbound and outbound shipping traffic on October 1 at more than 30 major and smaller ports from Boston to Houston when the International Longshoremen's Association declared a strike. The strike, involving 45,000 dockworkers seeking a 61.5% wage increase and protection from automation, was quickly suspended until January while negotiations continue.

While the immediate strike has been called off, several key points suggest the possibility of future labor action. One of the major issues still on the table is the union's request for a prohibition on automation at the ports. This remains a contentious point that could lead to future disputes

A strike could spur major supply chain disruption, which also has the potential to drive inflation and stall economic growth. The retail, auto and construction industries could be significantly impacted as an estimated 60% of consumer goods arrive in the United States by ship, said Chang. A strike also could stall the import of food and raw materials used in manufacturing, farming and construction and restrain exports that would take a heavy toll on farmers, meat producers, auto manufacturers and many other sectors.

But while Black Swan events like port disruption could create both inflation and recession concerns for commercial real estate, the industry benefits from a long-term investment cycle, said Chang.

"This port shutdown is likely just a blip from a long-term perspective," he said.

Article courtesy of Kristin Smithberg of GlobeSt.com.

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