KC Fed Chairman doesn’t believe inflation is here to stay

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Kansas City Federal Reserve Chairman Esther George speaks at the St. Joseph’s Chamber of Commerce Economic Summit / Photo by Brent Martin

By BRENT MARTIN
Saint-Joseph substation

ST. JOSEPH, Mo. – The chairman of the Federal Reserve Bank of Kansas City told an audience in St. Joseph that she doesn’t believe inflation is here to stay.

But, Esther George says the Federal Reserve cannot get complacent and must act to help turn around an economy that is still trying to emerge from the coronavirus pandemic.

George was the keynote speaker at the St. Joseph’s Chamber of Commerce Economic Summit held on the Missouri Western State University campus. George says the pandemic and our response to the pandemic has thrown the economy off balance.

“We have an economy where demand exceeds supply today and you all know from your basic Econ 101 that when that happens you get prices going up, George said.

George calls the current economy “tight,” a big improvement from the free fall she embarked on at the start of the coronavirus pandemic. The federal government has injected billions of dollars into the economy, fighting COVID-19 and helping to shore up businesses hit by the March 2020 closures and individuals left out of work.

George expects the economy to eventually return to its pre-pandemic level.

“The reason is that these tax checks went out the door,” says George. “Last year the PPP money was dispersed and the simple math is that the money is gone. We’re going to start to see a drop in some of that demand. “

The pandemic has also upset the economy, shifting spending from services to goods.

“People stop doing things like traveling. They stopped going to restaurants, ”says George. “They stopped engaging in the kinds of services that were so important and they started to sit behind their computers and start buying stuff or going to Lowe’s or Home Depot and buying things that would help. to renovate their house. ”

A big question hangs over the economic recovery: is inflation a temporary or more permanent concern?

George believes the 6% inflation rate the country has not seen in years is the product of the lingering effects of the pandemic and the slow recovery from the deep recession it caused. Supply chain issues, tight labor market, reluctance to revert to leisure spending all contribute.

George suggests that the current spike in inflation will not last. But, she thinks it could get out of hand if the Federal Reserve doesn’t act quickly.

“Once the public starts to believe that inflation is there and that the prices tomorrow will be higher than they are today, it sets off expectations for higher inflation,” according to George. “And, right now, we see that in a lot of surveys that consumers are starting to say, I think the inflation is going to be there for three years.”

George says inflationary pressures are expected to ease once purchasing habits return to pre-pandemic levels. She says the tight job market would be helped by increased access to child care that would allow women to return to the workforce.


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