The U.S. economy, since 2008 at the beginning of the Great Recession, has been “propped up” or supported (use whatever term you like) by a very active Federal Reserve Bank. In 2008 the Federal Reserve started a policy known as “Quantitative Easing”. Quantitative easing (Q.E.) is a form of monetary policy in which a central bank, like the U.S. Federal Reserve, purchases securities from the open market to reduce interest rates and increase the money supply.
Quantitative easing creates new bank reserves, providing banks with more liquidity and encouraging lending and investment. In recent years, in addition to Q.E., Congress and the Federal Reserve injected trillions of stimulus dollars into the economy, which included direct payments to U.S. citizens for the first time in our history. Inflation, which had been running below 2% for over 20 years, started to rear its ugly head in 2021. Today the inflation “fire” is a full-blown inferno. Half of the Federal Reserve’s “dual mandate” is to control inflation (the other half is to encourage maximum employment).
With inflation currently at 8% and out of control, the Federal Reserve has reversed course and is using its toolbox to put out the inflation fire. So instead of Q.E., we now have Q.T., “Quantitative Tightening”. This policy removes liquidity (money) from financial markets, tightening financial conditions. At the same time, the Federal Reserve is raising interest rates with some of the largest consecutive rate increases in its history. These dramatic policy changes take 6 to 18 months before their effect can actually be seen in the economy. So for the first time since 2008, the U.S. economy has to “fly under its own power” with no help from the Central Bank or Congress.
That is the backdrop from which commodities like snow crab, king crab, lobster, and crabmeat try to find their “fair market value” in the remainder of 2022 and 2023. Nobody knows what anything is truly worth or what it will be worth 3 to 6 to 12 months down the road because no one knows exactly what the effect of these massive moves by the U.S. Federal Reserve will have on our economy.
There is a SILVER LINING for future restaurant menu selections under this scenario. During an economic downturn like the one we are currently in, seafood commodities fall sharply and typically fall under their “fair market value”. You can then purchase these “undervalued seafood items” and promote them to your customer base in the form of “featured menu items”, thereby increasing your sales. It is our job to communicate the path of price declines across the seafood spectrum as we do each week in this newsletter.