There are a lot of things at play here. The Fed's balance sheet was 800 Billion before the Great Recession....and then they had no choice but to start printing like crazy during that recession. But that balance sheet has remained at about 4 trillion for many years after that. When the pandemic hit and we shut down a huge percentage of our economy, they had no choice again but to print like crazy. It was the equivalent of applying paddles to the patient to shock us back to life. A bit over a year later, that balance sheet is 8 trillion. And so there's a *lot* of cheap money sloshing around right now and it's looking for places to go. That's sort of the over-arching factor of this whole thing.
Another factor is we have had a supply chain interruption like we've never seen in modern times. And there are some really weird dislocations taking place as a result. The lumber shortage is an interesting one. There is plenty of raw material....plenty of trees to be milled. Tree farmers aren't making big money on this. But the mills shut down for a period of time during the pandemic. And so they got way behind in producing lumber. And when they restarted they couldn't produce as much because they needed to take precautions due to the virus. And you can't just build a new mill in order to produce more lumber....not quickly anyway. Plus, a new state of art mill costs about 2 Billion dollars. So...prices have skyrocketed. The lumber mills are cleaning up.
New cars...chip shortage. Used cars....way up because you can't get a new car. Demand for cars is up overall because there's a lot of stimulus money/excess savings floating around because people didn't really do much spending for an entire year. We have the highest savings rate here in the U.S. that I can remember. And a lot of people moved out of cities and as they get called back to work many want to avoid mass transit. So they now need a car.
The housing market is a hybrid issue if you ask me. Definitely a supply shortage, again, due to the slow down of building during the pandemic. Then factor in many people moving out of cities to the suburbs and exurbs to buy a home. And then there's just the normal number of 20 and 30-somethings who are first time home buyers. Throw in historically low interest rates....and you've got a white hot housing market. The supply shortage and hot market don't concern me, but we've now reached the "frenzy" level of the exercise, with multiple bidders on properties all over the country....launching prices beyond comps, and reason. I'm not sure we'll see a crash, but we're going to see the pendulum swing back a bit for sure.
As for gas, well, it always goes up at this time of the year. Also, we're rapidly reopening now and so demand is way up. And I'm old enough to remember April of 2020 when the price of a barrel of oil actually went negative...and refiners were having to pay dearly for storage if they even pumped the oil out of the ground. Some went out of business, and so...like the lumber mill example, fewer refiners mean less product, means higher costs.
Wages are up...because employers can't get enough help. Why? No, it's not just the expanded unemployment benefits, but it's likely a factor on some level. There's also the fact that many women had to leave the workforce to stay home to care for children who had been switched to remote learning. That's a huge number of people right there. They won't be back in force until there is childcare and/or school is back in session...in person. Also, thousands and thousands of immigrants, both legal and illegal, left the U.S. because there was no longer any work for them during the pandemic. A lot of them stayed in their countries when we reopened.
It all makes sense if you look at it logically. The big question is....what will the Fed do. Right now they continue to say that this is an inflationary spike due to the reopening....and that it's temporary. For now they're not indicating that they intend to shrink their balance sheet and raise rates...which will intentionally slow the economy down a bit. But I'm reading that they will begin to do so later this year, early next year at the latest.
