Banker: Despite inflation, the Nevada economy is strong

Bankers: Despite inflation, Nevada economy strong | Serving Carson City for over 150 years

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By Rob Sabo

Friday 22 July 2022

Runaway inflation can be felt in every town and rural community in northern Nevada, from record prices at the gas pump to skyrocketing grocery bills.
In mid-June, Federal Reserve Chairman Jerome Powell raised interest rates by three-quarters of a percentage point to curb the escalating price pressure. It was the biggest rate hike in 28 years – and the Fed is probably far from done.
The rate hike was expected as inflation has raced higher throughout 2022. The consumer price index rose 9.1 percent in July from a year earlier, the largest increase since 1981. The CPI measures the average change in the cost of goods and services to consumers over time.
Despite the attention-grabbing headlines and the very real possibility that additional rate hikes could bring the benchmark interest rate to 3.5 percent by year-end, there is no reason for northern Nevada companies to sound the alarm, said Andrew Ryback, president and chief executive officer of Pluma’s Bank and Pluma’s Bancorp.Andrew Ryback
“To put it in perspective, right now we have a target rate of 1.5 to 1.75,” Ryback told NNBW. “What caught everyone’s attention is the 75 basis point rise over the last month – we haven’t had rates rise that quickly in a long time. But that’s really not that high of a rate.
“Before the Great Recession, we expected interest rates to be 5.5 percent. As the recession hit, the Fed cut rates, cutting them to 25 basis points. It stayed there for a few years before we went back up to 2.5 percent. When rates get back there, they will be right where they were before the pandemic hit.”
The current and forthcoming rate hikes are designed to curb voracious consumer demand, which has been fueled in part by billions in payments across three rounds of stimulus payments following the onset of the COVID-19 pandemic. According to the Congressional Budget Office, the Cares Act, the Coronavirus Relief Act and the American Rescue Plan Act have pumped more than $850 billion into the national economy.
That massive influx of cash, coupled with ongoing supply chain shortages stemming from pandemic-related shutdowns, led to rising inflation, Ryback said. The Fed’s moves are designed to stem the rapid inflation that has eaten into the wallets of people in northern Nevada.
“The Fed is committed to raising rates to curb inflation, and it can do so when unemployment rates are still very low,” Ryback said. “The Fed has two jobs: inflation control and full employment. We definitely have full employment – anything below 5 percent is considered full employment. Inflation is the primary target, and rapidly rising interest rates shock the economy.”
Businesses need to reevaluate their products and merchandise to keep up with rising production and material costs, as well as higher commercial borrowing costs. The biggest impact will likely be a spike in regional unemployment rates, which could help some local businesses plagued by staff shortages, Ryback noted.
“Unemployment could rise above 5 percent but this economy is strong and will remain strong. I don’t expect a deep recession to happen because northern Nevada’s economy is so much more diversified than it was a dozen years ago when we entered the Great Recession. We are in a much better position and are not dependent on one industry.”
Although the rate hike will increase the cost of borrowing for private and public companies in northern Nevada, institutions like Plumas Bank and other regional lenders are in a strong financial position, Ryback said.
“Because of all the economic stimulus that has been introduced into the economy, the banks have a lot of liquidity – all the banks in this region are very strong and have very little credit quality issues,” he said. “I don’t expect any choppy waters in the banking sector.”
Consumers, meanwhile, are facing higher interest rates on credit card debt, and prospective homebuyers are facing higher monthly payments on their mortgages as borrowing costs rise.
That added financial burden could keep some potential buyers in the area in apartments rather than pursuing home ownership, said Susy Vasquez, executive director of the Nevada State Apartment Association.Susie Vasquez
“Interest rates and mortgage rates are going to put more pressure on apartment buildings because people aren’t going to buy houses,” Vasquez said. “They’re going to stay in place instead of having that normal transition.”
Even if the year ends at 3 percent or more, it shouldn’t have a major negative impact on businesses in northern Nevada, Plumas Bank’s Ryback said.
“It’s still a relatively low interest rate environment and the economy of northern Nevada will continue to do well with all the diversification,” Ryback said. “We’ve kind of become addicted to zero interest rate environments, but it’s really more normal to be above 2 percent.”