Once a year, the UC Santa Barbara Economic Forecast Project musters its energies to deliver its best projections to a theater full of the navy-jacket-and-chinos crowd. At $200 a ticket — a sum equal to two days’ after-tax earnings for anyone paid minimum wage — Wednesday morning’s confab provided well-informed thoughts from a Federal Reserve board governor, the chief economist for the City of San Francisco, and the head of the university’s Economic Forecast Project: Chris Waller, Ted Egan, and Peter Rupert.
Recent economic headlines formed part of the panelists’ talks and conversation. Regarding the debt ceiling showdown ongoing in D.C., only Rupert expressed an opinion, saying it was dumb and cost the country money. He noted that similar standoffs had resulted in government shutdowns lasting from four hours to 35 days from Reagan’s time through to Trump’s.
Bank failures are the other bad news of the day. Wednesday’s conversation took place at the Granada Theatre, which is smack dab between ChaseBank and First Republic Bank, the first of which rescued the second from the jaws of failure last month. The mess on First Republic’s balance sheets was in part attributed to interest rates, which went from near zero before the pandemic to 5.25 percent today, stranding low-interest bonds at the bank.
As a Fed governor, Chris Waller — who’d been a researcher for the Cleveland Fed, as had Rupert, before joining its board — discussed the data he had his eye on in determining whether or not the next meeting in June would lead to another interest rate hike. Those details included retail sales, industrial production, home manufacturing, the labor market, and so on. He was looking at their trends — rising or falling — and by how much for how long, he said.
The goal for the Fed was to adjust inflation to 2 percent, what they considered a target for an economy that was growing healthily. The means to get there was through interest rate hikes, which the governors could choose to hike, skip, or pause the increase in June, said Waller. The choice, he said, was likely to depend on credit conditions and on how the current interest rate affected the various indicators.
As for the bank failures in mid-March, Waller averred the events were still too recent to reflect in the data surveys yet. Some tightening of credit had occurred since the bank takeovers by the FDIC, he said, but whether two were related was as yet unknown.
San Francisco shares some aspects of its economy with Santa Barbara, namely its tourism and to a much lesser degree its tech industry — though its population is 3.3 million compared to the City of Santa Barbara’s 87,500 — and also some of the challenges, such as high home prices and a large homeless population. Ted Egan said the pandemic caused the city’s economy to do a one-eighty, and that they’d been trying to understand what happened ever since.
The tech industry was thought to be immune to recession and inflation — but pandemic was another matter. Tech had contributed 80 percent of San Francisco’s gross domestic product, he said, but suddenly people were working from home: The stores and restaurants they’d supported downtown were suddenly without customers; the public transportation they’d ridden suddenly went unused. Homelessness became much more apparent downtown, as did empty office buildings.
What brought gasps from the audience — which held a lot of people in the real-estate industry — was the news that an office tower recently sold for 80 percent less than its pre-pandemic value, as too much office space suddenly exists. Rents were also down 15-20 percent, Egan said. And for a city with a state housing goal of 8,000 units during the next eight-year cycle, San Francisco has received building permits for only 33 units so far.
Rupert spoke last, and he managed to be both amusing and confounding. A professor of economics at UCSB,…
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