Expectations are a funny thing. The dictionary defines it as the anticipation of what will happen in the future. We know that expectations drive behavior and emotions. Think about your own expectations of watching a family member’s graduation or wedding.
Nowhere do I see expectations motivate people more than planning a future vacation. We know from studies of human behavior and psychology that shared experiences and memories are some of the most valuable things people possess. Looking forward to creating those moments together is normal and fun. However, most of us, at one time or another, have had a travel experience that did not match what we expected.
We all remember movies about vacation plans gone awry. From Jurassic Park, to Weekend at Bernie’s, to the ultimate disappointing and bad luck experience of Clark Griswold and his hapless family in the movie Vacation, when after traveling cross country, Wally World was closed!! Many of us can understand and empathize because we have been there at one time or another.
Then there are employee reviews. Most people take pride in their job. They enjoy their work, and they strive to serve their clients and please their employers. However, when it comes to the annual employee review, there are times where the employee’s vision of their worth and value does not align with their boss’ view. This can create disappointment and frustration. Nobody captures this better than author and cartoonist Scott Adams of Dilbert fame.
From an economic standpoint, the Federal Reserve Bank is very concerned these days about consumers view of inflation expectations. How Americans view future anticipated inflation can drive their behavior and create a self-fulfilling prophecy of higher prices. As you can see in the chart below, people have been ratcheting up their inflation expectations significantly over the last year.
After stabilizing around 6% over the last several months, we know that Russia’s invasion of Ukraine could drive global food and energy prices much higher. This could factor into another escalation in expectations. We will be watching closely.
People and businesses make different decisions when they foresee higher prices coming down the road. If somebody thinks that prices will be higher in the future, they will likely buy now to lock in today’s lower price. Also, if a business owner is afraid that they may not be able to buy an item in the future due to supply chain shortages, they may buy more of that item than they really need now. Both behaviors create supply shortages and continue to drive prices higher in what can become a self-fulfilling upward spiral in prices.
This could have an enormous impact on the economy going forward. Our Investment Committee and the Certified Financial Planners of Impel Wealth Management are continuing to watch these trends and how it may impact the markets and the cashflow needs of our clients going forward. We thought we would keep you in the loop, as this is an incredibly important topic. It is also something that we have not had to deal with in a significant way and more than two decades. It is part of our mission as we continue “Moving Life Forward”.
© 2022 Jesse Hurst
The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.