In late January, the Federal Reserve announced that it probably won't be raising interest rates until late 2014 at the earliest. "Unless there is a substantial strengthening of the economy in the near term," said Fed Chairman Ben Bernanke, "it's a pretty good guess that we will be keeping rates low for some time."

That's good news for consumers eager to buy houses or finance big-ticket purchases such as automobiles, as well for as businesses in search of cheap capital to fuel growth. (Assuming, of course, that banks are willing to lend the money in the first place.) But it also signals a distressing lack of confidence by the Fed in the economy's near-term prospects.

With consumers unlikely to open their pocketbooks in the next few months, the Fed believes prices and inflation will stay low. But not everyone agrees with that assessment. Two weeks prior to Bernanke's statement, one economist predicted that inflation is due to come roaring back soon.

Walter Kemmsies is chief economist with Moffatt & Nichol, the global consultancy specializing in transportation infrastructure. Speaking at a meeting of the San Francisco Roundtable of the Council of Supply Chain Management Professionals, he said he wouldn't be surprised if inflation were running between 4 and 6 percent by the end of this year. As early as this summer, he believes, it will start to be a concern. The trend will be driven by big price swings in key commodities, mostly in the agricultural sector. In addition, as employment continues to rise, companies under pressure to boost profits in a slack economy will do so by raising prices.

Kemmsies said the Fed, having been late to downgrade economic expectations when the recession hit, is now being overly cautious in its target date of 2014 for an interest-rate rise. "I think we're going to see inflation rear its head much sooner than that."

You have to give the man credit for making such a bold prediction that can be proved wrong within a relatively short span of time. Yet his outlook for the U.S. economy is decidedly mixed. Kemmsies wasn't suggesting that activity is about to pick up - not without business and policymakers taking concrete steps to make it happen. On the contrary, he pointed to the distressing pattern of recovery from past recessions. With each downturn since 1970, he noted, it has taken longer to get back to previous levels of employment. If that trend holds true, it will be a whopping 95 months before the pain of the current slump is completely erased. Book your celebration parties for October of 2015.

The U.S. could speed things up, he said, if it were to act boldly in a few key areas. One is a commitment to rebuilding the nation's infrastructure. "The time is now," he urged, while sounding a pessimistic note over the likelihood of any real action. For one thing, the money for rebuilding the nation's highways, bridges, ports and waterways isn't there. For another, regulations and red tape are so prevalent that any major project takes years) to complete.

"We're going to have some infrastructure disasters happen before the country calls to arms," Kemmsies said. (Evidently one collapsing bridge isn't enough to wake legislators up.) "We need an infrastructure war instead of a drug war."

Another way to spark recovery is to boost U.S. exports. Kemmsies sees some positive signs, including the beginnings of a reversal in the nation's trade imbalance. Still, "the new normal has not yet become a new reality."

Oddly enough, he believes the U.S. has the power to lead the rest of the world out of recession, even as its own influence wanes. In the 1980s, the country accounted for some 50 percent of world gross domestic product. Today, that number stands at 22 percent, and Kemmsies said it could further shrink to below 15 percent by the end of the decade. At the same time, he called it "quite possible" that China will become the world's largest economy by around 2020.

Nevertheless, the nation needs to resume its role as global economic leader in the near term. "The U.S. has to start growing for the rest of the world to recover on the back of that," Kemmsies said. It needs to conquer its "arrogant" attitude and start selling to the world. Fast-growing countries such as China, India and Brazil are well aware of the role that exports play in economic growth. The U.S. has to get with the program.

So the country needs to export more - that's hardly a debatable statement. The obvious question is how. The nation's labor costs are far higher than China and many other parts of the developing world. With some notable exceptions, U.S. high-tech and consumer-goods manufacturers have fled to offshore locations. Even a weak dollar hasn't much helped American goods to compete in overseas markets. So where's the ability to launch an export renaissance?

According to Kemmsies, it lies in the fundamentals of the American economy. The nation has a lower cost of capital than most emerging markets, and can compete just fine in areas that are less labor-intensive, such as biotechnology. Quality control is at relatively high levels. Labor productivity continues to rise. And the U.S. has plenty of natural gas and water, the latter a scarce commodity in much of the developing world.

Where are the strongest export plays? Kemmsies said the U.S. can sell more grains and oilseeds, meat, biofuels such as wood pellets, and gas and coal. The nation, he noted, "has the highest rate of agricultural productivity in the world." In addition, there's strong global demand for capital equipment used in the energy, construction, agricultural and defense sectors.

Boosting exports alone won't do the trick; domestic consumption has to rise as well, before the economy can fully recover. But it wouldn't be too far off the mark to endorse Kemmsies' basic message: that the U.S. has the power to rescue the world - by rescuing itself.

- Robert J. Bowman, SupplyChainBrain

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