In many regards, Southern Nevada has seen an impressive economic recovery since the height of the COVID-19 Pandemic in early 2020. The numbers speak for themselves: nearly 350,000 jobs recovered since April 2020, unemployment down to 5.2 percent from a peak of 31.1 percent, and gross gaming revenue topping $1 billion in seven of the last 12 months. However, one aspect of the economic recovery remains a concern for economists, business owners and employees alike – inflation.
Over the last three decades, inflation has remained relatively controlled, only peaking briefly to 5.5 percent around the onset of the 2008 recession. Today, however, the U.S. is seeing an inflation rate of 9.1 percent, its highest rate since late-1981. Inflation today has primarily been driven by three key factors: a large injection of federal stimulus and money in response to the COVID-19 pandemic, supply chain impediments and surging oil prices.
All told, the federal government injected $4.5 trillion in aid into the U.S. economy throughout the COVID-19 pandemic to try to stabilize and reinvigorate the economy. All the while, the U.S. money supply has increased by $6.3 trillion since the beginning of the pandemic. Meanwhile, pandemic-related lockdowns at home and abroad have led to wide-ranging supply chain disruptions that have directly impacted consumer prices. Finally, with an increase in demand and reduced global supply, exacerbated by the war in Ukraine and the accompanying sanctions on Russian crude oil, the cost of a gallon of gasoline more than doubled from an April 2020 low of $1.94 to a peak of $5.03 in June 2022. Gasoline prices have dipped about 40 cents through mid-July, though they remained elevated and a significant contributor to the overall inflation rate.
In response, the Federal Reserve has been deploying two tools to combat inflation: increasing interest rates and tightening the monetary supply. Over the course of the last four months, the Fed has rapidly increased rates three times from near zero to a target level of 1.50 percent to 1.75 percent, with additional increases forecasted in the coming months. By raising interest rates, the Federal Reserve is increasing the borrowing costs to consumers and businesses, thereby tamping down demand. In addition, the Fed has begun to undertake a process of Quantitative Tightening, whereby the Fed will reduce the supply of money in circulation. This process will lead to $1.7 trillion less money in circulation by the end of 2023 in an attempt to cool the price of assets.
What remains to be seen is how the economy reacts to these historic actions. The hope is that by increasing rates and tightening the flow of money, inflation rates can be brought under control. However, the threat of an overcorrection leading to higher unemployment and an economic downturn remains. While Southern Nevada has made notable progress in diversifying its economy since the Great Recession, it remains at significant risk should an economic downturn occur. The actions of the Federal Reserve over the coming months and the economy’s reaction to them will be closely watched by economists, business owners and employees alike.
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Photo: Aerial photograph of downtown Las Vegas