More than two years into the pandemic and its recovery, we now face an entirely new set of facts in macroeconomics as we face a cooling economy and possibly another recession. Previously, loose monetary and expansionary fiscal policies saved the day for many people. Support for government programs to help the unemployed and small businesses proved essential during the recovery process. But now policy makers have to assess a completely different situation. Labor markets are overheated and employers are struggling to hire the workers they need. Moreover, the inflation dragon, chained for decades, is on the loose and worrying consumers, workers and financial markets.

The focus now is on the Federal Reserve (the Fed) and its upcoming actions. UNLV’s Center for Economics and Business Research (CBER) believes that the Fed stands figuratively between “a rock and a hard place.” The rock is the need to control inflation and the sticking point is the possible recession caused by an ill-calibrated withdrawal of monetary stimulus. As such, the Federal Open Market Committee (FOMC) has embarked on an aggressive strategy to tackle the rate of inflation. Two rate hikes, first of 25 and then of 50 basis points, have already taken place and increases of 50 basis points are on the table for deliberation at the next FOMC meetings. Private sector expectations of future interest rate movements have already pushed interest rates higher, with the yield on 10-year Treasury bills and 30-year fixed mortgage rates hitting 2.88 and 5.25 respectively. % on Wednesday, May 18. In other words, the Fed’s forward guidance is proving effective.

The Fed faces a difficult, if not impossible, task for some. In other words, can the Fed navigate the narrow path of a soft landing (taming inflation without causing a recession)? It’s a bit like landing a fighter jet on an aircraft carrier that’s too short and in rough seas. It can be done, but there is a probability of pulling at the end of the carrier, that is, causing a recession. Current thinking among Fed “watchers” puts the risk of a recession at around 50-75% (choose your commentator). The main concern is that the Fed has waited too long to begin the tightening process and is now too far behind the curve to generate a soft landing.

Last month, San Francisco Federal Reserve Board President and CEO Mary Daly told CBER’s annual Spring Outlook event that the three things she thinks about are “inflation, inflation and (pause) inflation”. She wanted to see a shift in consumer spending from goods (like cars and housing) to services (like retail and vacations), saying such a shift would reduce inflation. This change is happening. For example, airfares rose 18.6% between March and April, signaling higher demand, but higher prices are zapping purchasing power. But, that’s the point. The only factor in the current inflation episode that the Fed can affect is total spending. They must reduce it to slow down inflation. The Fed can only watch the effects on the supply chain from afar as the ongoing pandemic shuts down economies like China, energy and food production shocks and war in Ukraine.

What does this mean for Las Vegas and our “new normal”? Continued rising prices for everything from gas and food to housing and airfare, which signals excess demand in markets, will over time create a drag on spending, especially as real wage gains are swallowed up by price increases. Moreover, Fed policy is also aimed at depressing demand. How many? Just enough. And therein lies the problem. Too little reduction and inflation continues; too much and recession looms. That hasn’t been reflected in gaming revenue, which continues to hit record highs as we saw in March. This is good news today for operators and workers.

CBER predicts a rebound in visitor volume will continue this year, up 20%, but it may ease in 2023 as purchasing power erodes and rising interest rates help to reduce inflation. The arrival of new sports and events in town, such as Formula 1, is good news, but Las Vegas remains vulnerable to any further disruption to the US economy. There were still scars in the labor and housing market from the Great Recession even before the pandemic hit (about one in seven people in Las Vegas is at or below the poverty line) and another recession n It’s not a question of if, but when.

When the economy cools, Las Vegas could once again become the metropolitan area with the highest unemployment rate in the country (which costs the unemployed, but also our businesses and taxpayers in general). This contrasts with our neighbors to the south, Phoenix, and to the northeast, Salt Lake City, who might not even notice the economic shock because they have made serious and significant investments over the past 20 years in diversification and development. economic. Until we too take economic diversification seriously, every time the global economy sneezes, Las Vegas will catch a cold.

Andrew Woods is the director of UNLV’s Center for Economics and Business Research (CBER). Stephen Miller, Ph.D., is director of research at CBER and professor of economics.