By Michael S. Derby

(Reuters) – The resolution of a U.S. port strike is likely to keep global supply chain pressures calm, leading to a continued slowdown in inflation, an index tracked by the New York Federal Reserve showed on Friday.

The regional Fed bank’s global supply chain pressure index, which measures deviations from historical averages, eased to a reading of 0.13 in September. This ended an upward trend that saw the index rise from -0.96 in April to 0.2 in August.

Global supply chain pressures have remained around normal or below normal since early 2023, significantly contributing to reducing inflation, which allowed the Fed to begin its interest rate-cutting cycle last month. Supply chain disruptions during the early stages of the COVID-19 pandemic played a critical role in driving U.S. inflation to 40-year highs in 2022.

Progress in lowering inflation had been threatened by the now-suspended port strike on the U.S. East Coast and Gulf Coast.

After the U.S. government reported a surge in job growth last month, Chicago Fed President Austan Goolsbee expressed on Bloomberg Television that “you really couldn’t ask realistically for a better report for the economy, coupled with finding out that the port strike is not going to be an extended matter … those are two pieces of very good news for the economy.”

There had been concerns in financial markets that an extended strike could reignite inflation by disrupting trade, potentially raising doubts about the Fed’s planned rate cuts.

The agreement reached between the alliance of port operators and the union representing thousands of dockworkers on Thursday removes a risk to the economy and alleviates the threat of “a potential near-term resurgence in supply chain disruptions and inflation,” noted Joseph Brusuelas, chief economist at RSM US LLP, in a client note.

However, the U.S. economy is not completely in the clear due to the tentative nature of the agreement, which requires both sides to finalize a new contract by January 15, 2025.

This deadline “threatens to exacerbate supply chain bottlenecks as it coincides with critical shipping cycles, including replenishing inventories post-holiday, spring season product positioning, and preparations for the Chinese New Year,” said John Donigian, senior director of supply chain strategy at Moody’s (NYSE:MCO).

“If an agreement isn’t reached by January, we could see a repeat of delays and cost surges, impacting consumer prices and market stability,” he added.