Inflection Point For Inflation
Economist Forecasts Continued Recovery For Hospitality In 2023 During Lodging Conference
While acknowledging that the country is in the midst of a recession, economist Bernard Baumohl offered hoteliers a couple of reasons for optimism suggesting that “the worst is over” in terms of inflation and predicting that the overall U.S. economy would grow in 2023.
Presenting “The Economic Outlook” at last week’s Lodging Conference in Phoenix, Baumohl—chief global economist, The Economic Outlook Groups, LLC—emphasized the impact of geopolitical factors on the U.S. and pointed out that “we have to engage in a more holistic view of the forces that impact the economy.”
Despite some of the geopolitical headwinds, Baumohl underscored some of the positive signs, specifically as it relates to hospitality.
“The economy is going to continue to grow in 2023 and frankly that means that we will see further recovery. We will see progress in leisure travel and we will continue also to see some growth even in business travel, but we all know that it’s still going to be lagging at this point in time,” he said, adding that corporate spending growth will continue to be more gradual than leisure spending increases.
Baumohl further elaborated on the need for a global perspective.
“Not all recessions are created equal. This is one that’s been triggered largely by geopolitical events, not by some excess happening here in the United States. Household and corporate balance sheets are still in pretty good shape; they’re not overly leveraged right now. Banks are better capitalized, employment is still pretty healthy and I think the U.S. is just generally more insulated than Europe from the shocks that are happening in the Ukraine,” he said.
In addition to the war between Russia and Ukraine, Baumohl also cited COVID and rising interest rates as the other two most pressing concerns when it comes to near-term future of the economy.
He further emphasized that controlling outbreaks of COVID is critical throughout the globe. However, he noted China and its policies are of particular concern.
“Our assumption here is that China will largely continue those zero [tolerance] COVID policies in 2023 and that will mean that demand from Asia for key critical commodities will be depressed,” said Baumohl.
Meanwhile, the Federal Reserve announced last week announced they were raising interest rates another 75 basis points as Baumohl suggested they would prior to the announcement.
“The Fed will now be in a restrictive zone. That is they’re now putting the brakes a little bit harder on the economy. The question is how high will they eventually go?” he asked.
Baumohl further added that some experts have suggested Federal Interest rates could go as high as 8 percent, but for his part he doesn’t see that.
“I don’t think we’re going to be anywhere near those ranges. The Federal Reserve is essentially in a box they’re facing a really grim reality, which is that more than 70% of the forces driving inflation in this country stem from events that are taking place outside the U.S.” he said, noting that he thinks a 50-point hike in November may be likely.
Baumohl further explained why he sees the rate hikes being curtailed eventually.
“What we are now beginning to see already in some of the data is an inflection point in inflation. The beginning of what we suspect will be long-term downward trajectory in terms of inflation; the worst is over,” he concluded.
