Inflation is the 'biggest risk to the market': Northern Trust Wealth Management CIO

As supply-chain bottlenecks persist, investors are preparing for backlogs to continue into next year, and that’s fueling concerns of even higher inflation.

“The biggest risk that we have right now is that inflation expectations become unanchored,” Katie Nixon, Northern Trust Wealth Management CIO, said Monday at Yahoo Finance's All Markets Summit when discussing higher prices driven by the current supply-chain crisis. “We have seen expectations rise pretty notably over the past couple of weeks.”

To put inflationary pressures in perspective, the Consumer Price Index has climbed at least 5% on an annual basis for the past five months. The most recent reading showed inflation picked up 0.4% in September, bringing the year-over-year climb to 5.4%, and in turn, matching the largest annual gain since August 2008.

And consumer expectations for inflation remain elevated, according to a recent report from the Federal Reserve Bank of New York. Inflation expectations for the year ahead rose to 5.3% last month, marking the eleventh monthly increase in a row and a new high since the start of the survey in 2013.

Higher inflation expectations among investors and consumers come as Federal Reserve Chair Jerome Powell warned last week that “supply-side constraints have gotten worse,” and that the risks are now for “longer and more persistent bottlenecks.”

The White House is paying close attention to the issue as well as higher prices hit Americans at home. President Biden laid out his plan to keep the ports of Los Angeles and Long Beach open 24 hours a day, seven days a week to help alleviate supply-chain pressures, but a number of experts caution that his plan doesn’t go far enough, and in turn will do little to tame inflation in the short term.

In a recent interview with Yahoo Finance Live, American Apparel and Footwear Association CEO and President Stephen Lamar said ordering 24/7 operations at key West Coast ports is "too late to do much now."

“It really is a crisis that has taken on unprecedented proportions,” explained Lamar, referring to the supply-chain issues. “This is really going to require the concerted and continuous effort by the U.S. government to really try to move us forward and move us out of the crisis that we're experiencing right now.”

While the broader market may not reflect investors’ concerns given the fact that we’re hovering near all-time highs, policymakers and strategists are keeping a close eye on rising prices, and it’s an issue that Nixon expects to take about a year to work through.

“We are seeing [inflation] expectations rise as supply-chain issues become more prolonged than we had anticipated ... It’s probably the biggest risk in the market right now,” Nixon added. “But we do think, though, a year from now investors will not be worried about inflation. This will pass, it’s just going to take a little bit longer.”

Seana Smith anchors Yahoo Finance Live’s 3-5 p.m. ET program. Follow her on Twitter @SeanaNSmith

Yahoo Finance's All Markets Summit
Yahoo Finance's All Markets Summit

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