Brice Wallace
The leader of the Federal Reserve Bank of San Francisco acknowledged that the simple two- and three-syllable words “COVID” and “inflation” have had far-reaching effects on the U.S. economy.
However, speaking virtually to an audience at the 2022 Utah Economic Outlook & Public Policy Summit in Salt Lake City, Mary C. Daly espoused a viewpoint on those two matters of, essentially, “these too shall pass.”
“I think we are, barring any surprises on COVID, on the COVID front, we are on our way,” Daly, president and CEO of the Federal Reserve Bank of San Francisco and host of the podcast “Zip Code Economies,” said at the summit, presented by the Salt Lake Chamber and the Kem C. Gardner Policy Institute.
The nation, she said, “will be living with something that we now have learned how to manage” and the pandemic will not substantially affect how the nation’s economy moves forward. “So in 2022, I see the beginnings of really building back from what we have gone through,” Daly said.
Regarding COVID, Daly said the omicron variant appears to be less deadly, less virulent, than other variants despite its more-contagious nature, making it “not as challenging and painful as the previous variants.”
“I’m very bullish that once we get past this, then we will be ready to re-engage,” she said, conceding that COVID currently “prohibits us from living the life we truly want.”
Right now, the phrase “as goes COVID, so goes the economy” still holds, she said.
“I do think that the omicron variant will only make a dent in the growth rate and then we’ll kick back up, just like we did with delta,” she said, referring to an earlier variant. “We had a dent in the growth rate of the U.S. economy, we had a dent in the slowed growth in the labor markets and things of that sort, [we had] increased inflation, but then as we saw it move out, before we got omicron, we saw improvements.
“Now we’ve got omicron, so I wouldn’t be surprised if we get another dent, but I am optimistic that we’ll get through this, we’ll continue to move forward. Consumers want to spend, businesses want to open and people want to work, and those things will all come back together. But, again, we have to get through this.”
As for inflation, she described it as “uncomfortably high for an uncomfortably long time.” In December, the year-over-year inflation rate was 7 percent, making it “the thing that’s on the top of everyone’s mind.” At grocery stores or gas stations or while paying rent, “you know that inflation is above a comfort level.”
Getting inflation rolling were a pair of factors. One, with COVID preventing people from spending money on services — museums, sporting events, traveling — they turned to buying goods, in the form of Internet shopping for home gym equipment, outdoor equipment, furniture and home remodeling.
“We’re doing everything in the world we can to spend our money, and we have more money than we typically have,” Daly said.
That extra money comes from savings from not spending as much as usual, plus federal government checks. “So the American consumer is flush with cash in many ways, flush with savings, and it is eagerly spending it on goods, things,” she said.
But among the results is a hesitance by companies to produce even more goods.
“If you’re a goods-producing business … they understand that we’re not going to buy goods at this level or this rate, once we can go out and do other things, that we’ll go back to our normal spending patterns,” Daly said. “So the last thing in the world they want to do is build a new factory to produce something that’s only going to be in demand at this level for a short period of time, in factory-building terms anyway.”
But Daly’s overall positivity about the economy is based on its traditional resilience and the fact that it was going strong before COVID hit. It nonetheless faces intermediate and long-term risks. One is that “we will forget how important it is to have more people participate in our economy,” she said. Four million people that once were working now are not.
“That is a medium-term risk to us because ultimately every time a worker doesn’t work and sits on the sideline, that’s less-productive capacity for our economy,” she said.
A longer-term risk is climate change, which will upset economies in certain parts of the nation. “We have to think about it,” she said. “I don’t think it’s going to derail us, but we absolutely have to be mindful about it so that we don’t get caught off-guard.”
Some people already are making adjustments and adapting. For example, ski areas unable to make enough snow are turning into year-round destinations.
“What I do know,” she said, “is that business that are thoughtful about it and recognize that this is actually happening and get ahead of it and think about how to offset it, those are the ones that will be better off.”
The nation in 2022 will be better off economically, she expects. Daly agreed that Utah has a “hot” economy, but some other states and economic sectors need to rebound because they are “not at all back to where they were … and not moving back.”
