Federal Reserve Chairman Jerome Powell did not have reassuring words on the state of inflation Tuesday.
Powell told the U.S. Senate Banking Committee that inflation could persist “well into next year” as wage rates continue to increase and people opt not to return to work for fear of the continuing pandemic.
“It now appears that factors pushing inflation upward will linger well into next year,” he said. “In addition, with the rapid improvement in the labor market, slack is diminishing and wages are rising at a brisk pace.”
That was a shift from earlier predictions that inflation would quickly ease as the pandemic improved and people returned to work. The testimony took its toll on Wall Street, which sent stocks tumbling again. Investors were especially harsh on restaurants. The median restaurant stock fell 2% and nearly every company ended the day down.
Some companies were hit especially hard. Sweetgreen, which has had a roller coaster few days, was down 8.5% on Tuesday. Carrols Restaurant Group, the big Burger King franchisee that has seen its stock tumble this year, closed down more than 5%. Both Krispy Kreme and Jack in the Box closed down more than 4%.
The broader stock market indices were all down. The S&P 500 Index closed down 1.9% on Tuesday.
Stocks have been especially volatile since Friday, when growing concern about the omicron variant of the coronavirus triggered fears of a prolonged pandemic. That concern intensified on Tuesday, after Stéphane Bancel, CEO of the pharmaceutical company Moderna, told the Financial Times that vaccines would struggle with the new variant.
The comments added to fears that the variant would evade vaccines and send cases surging even further, which could prompt more restrictions and other efforts that would in turn hurt the economy.
Powell indicated that the new variant could prolong the labor recovery into next year, which would intensify many of the supply chain disruptions that have hammered much of the economy.
“The recent rise in COVID-19 cases and the emergence of the omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” Powell said. “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”
Labor challenges have been the restaurant industry’s biggest problem this year. Despite an impressive sales recovery, operators say that the environment poses considerable challenges as they struggle to recruit and retain enough workers to meet demand.
Restaurants have been dramatically raising wages—often 10% or more—to get people in the door. They are also raising prices to pay for those wages. But operators are also struggling to source enough products due in large part to a lack of drivers for distribution companies or a lack of workers at processing plants and other vendors.
The rising costs have raised concerns on Wall Street that restaurants’ profit margins will shrink even as their sales take off.
Many restaurant companies are now close to their 52-week lows and a few established new lows on Tuesday, including BJ’s Restaurants, Cracker Barrel, Brinker International, Jack in the Box, El Pollo Loco, Red Robin, Del Taco and Carrols.
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