Issue link: https://iconnect007.uberflip.com/i/1475010
AUGUST 2022 I SMT007 MAGAZINE 39 environment, the industry or subsectors that you're in become very important. Johnson: at becomes an exercise in strate- gic planning to figure out whether you need to invest, pivot, or exactly what you need to find the right spot for you based on your skill set. DuBravac: is year, as companies enter that strategic planning period, it is especially impor- tant that companies review their portfolio not just from their assets, but where their produc- tion capacity is going. What are their portfo- lios of products and services that they are pro- ducing. Johnson: You mentioned that the Federal Reserve doesn't have the advantage of time to make slow changes and let them play out entirely. ey don't have that opportunity this time around. Can you explain? DuBravac: It goes back to this idea that it takes about six months for interest rates to be fully transmitted into the economy. In a normal environment, if you felt like things were over- heating a little bit, you raise interest rates, then wait and see how that plays out. If it has the desired effect where it slows growth, keeps prices well contained without raising unem- ployment, then you're good. If you find that, aer two or three months, it's not really hav- ing the full effect that we need, then you can raise interest rates again, and maybe you move another 25 basis points. You have time in which to raise interest rates over a longer time horizon as well as you can do smaller moves. When you're looking at 8% inflation and very low unemployment—the situation we're in— the Fed is betting that the economy can endure pretty high interest rate increases over a short period of time without stalling and without falling into recession. I know the Fed is looking at job openings. Normally, the Fed is trying to balance these two mandates of low unemployment and low inflation. In some ways, they compete against each other because you can get low unemploy- ment with low interest rates, but you don't typ- ically get low inflation with low interest rates. It's the opposite. e Fed is betting that they can raise interest rates and it won't stall the economy, but it will cause companies to not be looking for so many jobs. It will moderate the labor market through the job openings. But on the tech side, companies are already announc- ing hiring freezes. Netflix has done some lay- offs. You have some companies that are already into the layoff stage. Johnson: Intel just did this recently. DuBravac: It's surprising news from a company like Intel where you've got strong demand. e struggle for the Fed is it will need to move rates aggressively higher to combat inflation, and they won't know the full impact of those rate hikes for some time. By the time they are fully absorbed in the marketplace, we could be in a meaningful recession, which would then force them to reverse course, if they could, but that will be very difficult to do if inflation is still high. ey're going to potentially get stuck in this Catch-22. Now, the good thing about the U.S. is that we do have strong underlying growth, so the Fed's problem is very different than central banks in other parts of the world. e Fed's problem is high inflation, but in an environment where The Fed is betting that they can raise interest rates and it won't stall the economy, but it will cause companies to not be looking for so many jobs.