Esther George’s economic outlook talk summarized in three words: shock, shift, and shade

Esther George kicked off her tenth and final year as president and chief executive of the Federal Reserve Bank of Kansas City by sharing her economic outlook with Central Exchange (CX) today.

She thanked CX in her opening comments for being her first big public speech and for this annual opportunity. She also said, “CX has been an important part of Kansas City’s success as it provides support for women to develop their leadership abilities and contribute to the momentum in our community. Our partnership with CX has benefitted a number of women leaders here at the Kansas City Fed, including me.”

We got into the current inflation situation because of two main things:

⬛ Shock. The shock of Russia’s invasion of Ukraine affected energy and commodity food prices most of 2022. The shock of the pandemic took its toll on prices and systems too. Both of those ended up affecting business and household purchases across the globe.

⬛ Shift. The shocks led to significant shifts between supply and demand, which caused an imbalance and fluctuating prices. Remember those photos of ships packed with goods waiting to deliver to US shores? Now, those ships are gone. Supply is stable, demand for those goods has stabilized, and prices have too. Demand for some services has increased, however, but supply is low because of the tight labor market. The shifting patterns contributes to the economic situation.

President George was very clear that the Federal Reserve is committed to restoring economic stability. She mentioned that the longer inflation sticks around, the more we consumers and business leaders plan around it, which makes it harder to influence.

⬛ Shade on the path. There are four unknowns preventing a crystal clear path for the Fed as it walks the path forward. President George anticipates inflation could be with us in 2025, and these issues shade the forecast.

1) Global outlook remains unsettled. The US is not going to get a boost from Europe or China. They have their own economic challenges right now.

2) Household liquidity. As spending during the pandemic was curtailed, US households saved a lot more of their incomes. Are we all going on spending sprees or keeping our money? Our choice will affect the economy.

3) Reduction of the Fed’s balance sheet. This goes back years and was interesting to hear about. The Fed bought assets to boost the economy during the last recession of 2008-2009. Now, it needs to get rid of those assets to bring its balance sheet down to the size it should be to do its job. The Fed should not be so big that it influences the markets, so this is a good thing but it takes time.

4) Tradeoffs between inflation and employment remain complicated and difficult.

President George made a remark at the end of her talk that demand is not the be-all-end-all cure for growth. Apparently prior to the pandemic, the Fed focused most of its economic solutions around boosting demand. As we have seen in recent years, however, there are supply issues to face when demand increases. When demand was boosted, the supply could not meet the demand, and that caused gigantic issues for the economy.

It caused issues for people.

Those are issues the Federal Reserve will face as President George retires at the end of this month.

During the Q&A portion of today’s talk, President George was asked to share a key lesson learned over her career. She answered saying she found “an organization that was supportive if you were willing to put in the work.”

There’s something to ponder: is your company supporting you (assuming you are putting in the work)? Or, do they keep giving you more work, assigning more teams, putting you on more projects without any talk of a raise or promotion? If that’s happening, what are you getting out of that? What’s your end game?

Another question asked was about highs and lows of her career.

President George said the best part of her career is, “The people who work for the Federal Reserve take this seriously. They are attentive to what we have to do on behalf of the American public. They are the highlight of my career.”

There will be big shoes to fill after President George exits the Fed in a few weeks. She did not announce what is next for her. Here’s hoping she walks those shoes into another organization in Kansas City.

The key to resilience after a tumultuous year according to the President and CEO of the Federal Reserve Bank of Kansas City

Ms. Esther George, president and chief executive of the Federal Reserve Bank of Kansas City, spoke with more than 125 members of Central Exchange today, sharing her annual look back on last year and look ahead to the future.

“Last year was one for the record books.” Ms. George said as she described five oddities of 2020 caused by the pandemic’s impact on people and the economy:

1. The GDP had its largest decline on record and its largest increase too.

2. Unemployment hit a 50-year low before rising to levels not seen since the Great Depression more than ninety years ago.

3. The equity market reached record highs.

4. The price of oil dropped to less than zero for a short time.

5. Government debt rose more rapidly than ever before, even as the yield on government securities set record lows.

For its part, Ms. George added, the Federal Reserve, “broke new ground in policy accommodation, while also expanding its balance sheet to record size.”

While Ms. George’s role is tied to using the Fed’s tools to support a strong economy, her remarks were tied to the human impact of the pandemic too. She showed keen understanding of the pandemic’s impact on households and referred several times to the disruption it caused.

She spoke about job loss and how it stifles future career advancement opportunities especially for those most impacted by the pandemic; student loan debt and its impact on those who earned the degree/certification and those who hold the debt without it; and how helping small businesses is crucial to the economic recovery.

Ms. George spoke several times about technology driving the economy and changes to Fed practices. One example is the increased reliance on e-commerce and online payments. The Fed’s current system is too slow to support the immediate payment transaction, so it is working on a new system to enable more innovation regarding online financial transfers. The new system is a few years away, but it was refreshing to hear it is in the works.

For her economic outlook, Ms. George pointed out the economic growth stalled at the end of 2020 as consumer spending was down. Consumer uncertainty about the economy impacts spending, which gets attention. Consumer spending is down, however, savings are two times higher than they were before the pandemic.

I am not an economist, so I liked hearing people are saving more in order to protect themselves from the turbulence of the pandemic and other uncertainties.

Ms. George is optimistic about the eventual recovery, but her optimism is tempered by how well the vaccine distribution will continue to be handled. She said, “It is difficult to imagine a sustained and robust recovery until the virus no longer interferes with people’s day-to-day decision-making.”

In addition to the vaccine, Ms. George listed three other positive indications for the economic recovery:

1. Investors are optimistic that demand will return to hardly hit sectors (e.g. leisure, hospitality, travel).

2. Companies with inventory ran their inventories low, so as recovery evolves, they will need to re-stock, thus, impacting supply chains.

3. Aggregate personal income was at a high after the CARES Act payments, which will spur spending as the pandemic wanes. Since people are saving more now, they will have more to spend when they do not fear the pandemic’s effects on their jobs and lives.  

Ms. George’s address of 2020 also emphasized how important consumer spending was to economic growth. At the time, I encouraged consumers to keep saving and let corporations spend more. That was pre-pandemic, yet, my encouragement stands. (Link to the 2020 summary.)

Big banks and many big corporations have healthy balance sheets boosted by taking government loans during the pandemic because the interest is so low. Their CEOs are coming out of the pandemic with healthy personal balance sheets too. They have the money, so let’s encourage them to spend it and bare more of the burden for the economic recovery.

The bottom line for Ms. George was that the economic recovery depends significantly on the eradication of the COVID-19 virus.

Her intention with regard to the Federal Reserve’s post-pandemic policy is to “wait and see” when the virus loosens its grip on the economy.  She seemed hopeful for a quick rebound, unlike the prolonged agony after the 2008 recession.

Ms. George’s optimism, accompanied by her wisdom, delivered a ray of hope during this tumultuous time.

Insights on the Economy (and more!) from Esther George, President and CEO of the Federal Reserve Bank of Kansas City

There must have been close to a thousand people gathered to hear Esther George, President and CEO of the  Federal Reserve Bank of Kansas City, speak about the state of the economy last week. Thanks to Central Exchange, this annual event is one of the best opportunities to hear directly from one of the country’s most influential leaders.

While the economy is certainly important, the very beginning of President George’s talk intrigued me the most.

She began by talking about Paul Volker, Chairman of the Federal Reserve in the 1980s. She became President of the KC Federal Reserve when he was still Chair, and he mentored her. Chairman Volker passed away in December 2019, and President George spoke of her admiration for him.

As a student of leadership, I was eager to hear what President George admired in another leader. Here are a few things she said she admired about Paul Volker:

• Courage to endure short-term suffering in favor of long-term gain

• Willingness to share his advice and experience (He always took her calls)

• Able to speak his mind—and it was informed

• You knew where you stood, even when there were disagreements

• Intellectual honesty

• Interest in the American public

• Encouragement

She said, “Leadership, integrity, and service were at the core of Paul’s character, and they are what I aspire to each day.”

President George then reminded us of how the economy was good a year ago but began to sour as trade became questionable. Trade continues to be questionable, and that is weakening business and manufacturing spending. Consumer spending is up, however, and it is causing 2020 to start with some momentum.

“When consumers feel good, they spend. Consumer confidence is at post-recession levels, but when we look forward, consumers are concerned,” President George explained. When consumers see their future as bleak and fear losing their jobs, their spending slows.

I am not an expert but find it interesting to note that businesses don’t feel good enough to spend, but consumers do. Perhaps we consumers ought to note that and tone down the spending? Why are we doing the heavy lifting with this economy?

Here is how President George summarized the state of the economy:

1. The economy is in good shape.

2. Employment is at high levels.

3. Inflation is low and stable.

4. Business spending is soft.

5. Consumer spending is poised to carry the economy forward.

President George thinks keeping rates on hold is wise, as the outcome of last year’s rate cuts and other incoming data remains to be seen. In the meantime, she said, the Federal Reserve will be reevaluating its monetary policy strategies, tools, and communications to address future downturns.

Thank you, President George, for sharing your insights, for your influence on America’s economy, and for being a leader of strong character.

On a different note, there was a creative display of U.S. currency origami in the lobby. Check it out!