By BRENT MARTIN
St. Joseph Post
ST. JOSEPH, Mo. — The president of the Kansas City Federal Reserve Bank tells a St. Joseph audience she doesn’t believe inflation is here to stay.
But, Esther George says the Federal Reserve cannot become complacent and must act to help right an economy still trying to emerge from the coronavirus pandemic.
George was the keynote speaker at the St. Joseph Chamber of Commerce Economic Summit held on the Missouri Western State University campus. George says the pandemic and our reaction to the pandemic threw the economy out of balance.
“We have an economy where demand is outstripping supply today and you all know from your basic Econ 101 when that happens you get rising prices,” George says.
George characterizes the current economy as “tight,” a vast improvement over the freefall it went into at the beginning of the coronavirus pandemic. The federal government pumped trillions of dollars into the economy, fighting COVID-19 as well as helping to shore up businesses rocked by the shutdowns of March 2020 and individuals left without work.
George expects the economy to return to its pre-pandemic level, eventually.
“The reason is those fiscal checks have gone out the door,” George explains. “Last year, the PPP money has been dispersed and just the math is that that money is gone. We will begin to see a step down in some of that demand.”
The pandemic threw the economy out of balance as well, shifting spending away from services and toward goods.
“People quit doing things like traveling. They quit going to restaurants,” George says. “They quit engaging in the kinds of services that were so prominent and they began to sit behind their computers and starter buying stuff or going to Lowe’s or Home Depot and buying things that would help remodel their homes.”
A big question looms over the recovering economy: is inflation a temporary or more permanent concern?
George believes the 6% inflation rate which the country hasn’t seen for years is a product of the ongoing effects of the pandemic and the slow recovery from the deep recession it caused. The supply chain problems, the tight labor market, the reluctance to return to leisure spending all contribute.
George suggests the current spike in inflation will not last. But, she does believe it could get out of hand if the Federal Reserve doesn’t act promptly.
“Once the public begins to believe that inflation is there and that prices tomorrow will be higher than they are today, it’s sets expectations in motion for higher inflation,” according to George. “And, right now we see that in many surveys that consumers are beginning to say I think inflation is going to be here for three years.”
George says inflation pressures should ease once buying patterns return to pre-pandemic levels. She says the tight labor market would be helped by an increase in day care access which would allow women to return to the workforce.