Adnan Zai, Advisor to Berkeley Capital Beachwood, lives and works in Beachwood, and the economics of the surrounding Cleveland area are of extreme importance to him. He has watched with keen interest the effect that the pandemic and recovery has had on the area, and recently sat down to talk to us about how Cleveland is stacking up to the nation in terms of economic recovery.
Mary Kraven: It is no surprise that the economy has been on a roller coaster ride for the past few years. On July 26, 2023, the Federal Reserve announced yet another quarter-point hike. With the most recent hike, rates in the U.S. have increased 5.25 percentage points over the past 18 months. This is a pointed campaign by the Federal Reserve to keep inflation from rising. Do you think it is working?
Adnan Zai: Yes, whenever inflation is rearing its ugly head, the Fed steps in to raise the rates in the hope of keeping inflation at bay. It’s clear that the Federal Reserve is taking inflation seriously. Cleveland, as one of the largest metropolitan areas in the United States, has of course felt the effects of these rate hikes. But Cleveland’s economy remains strong. As the Federal Reserve continues to work towards its goal, it’s important to keep an eye on the impact its actions are having on cities like Cleveland and the country as a whole.
Mary Kraven: I agree. Although the forecast for the economy was much bleaker a year ago, many economists are surprised by the resilience of the economy. Federal Reserve Bank of Cleveland President Loretta Mester spoke recently about the increase, saying “The economy has shown more underlying strength than anticipated earlier this year, and inflation has remained stubbornly high, with progress on core inflation stalling.” What are your thoughts on this?
Adnan Zai: It’s like the “never-say-die” spirit of Clevelanders. You might expect it to crumble, but it hangs on tenaciously. The strength in the labor markets and the resilience of the overall economy are what continue to drive interest rates higher. While rates are continuing to rise, for now, it seems we have dodged the recession bullet that everyone talked about so vehemently last year. Only time will tell if a recession is needed to fully tame inflation.
Mary Kraven: Yes. And the good news is that Ohio has finally recovered all of the jobs it lost because of the pandemic. We lost 16% of our jobs in 2020, but just this past May we have recovered the losses. Although it took 3 years, slow and steady finally won the race back where we started.
Adnan Zai: It is difficult to say I would like to see the unemployment rate rise but, that is a key driver in why inflation remains an issue. Cleveland’s unemployment rate is higher than the national average, at 4.4% compared to 3.8%. But overall, the Cleveland job market remains strong like many around the country. Unfortunately, for the Fed to reach its target of inflation at 2% we will most likely need to see the labor market weaken.
Mary Kraven: Yes, it seems there is still more work to be done in regards to the economy weakening before we truly see the Fed pause their interest rate hikes. The interest rate hikes are also having a negative effect around the globe, especially in developing countries. There are a few reasons for this: currency depreciation and debt distress. I can see how currency depreciation would happen around the globe since the dollar is thought of so highly. But can you talk to us about debt distress?
Adnan Zai: Many countries borrowed a lot of money in the face of Covid-19 and also because of the ramifications of the war in Ukraine. Now that it is time to repay these loans, so many governments are having a difficult time coming up with the funding necessary. With the U.S. rate hikes, it just gets harder and harder for these developing countries.
Mary Kraven: David Malpass, then president of the World Bank said in May that
some 60% of lower-income countries are at risk of debt distress. And the income inequality is becoming more pronounced as well. “The 2022 World Inequality Report notes that, currently, the richest 10% of individuals globally take home 52% of all global income, while the poorest half of the global population receives a mere 8.5%. And such a wealth gap is deeply corrosive for societies.” This has been linked to a lack of democracy, corruption, and violence.
Adnan Zai: Yes, inequality will do that. Having lived on 3 continents, I have seen firsthand how this large gap leads to corruption and violence. In Cleveland, we are lucky we are not reacting to interest rate hikes in other countries but are building back our economy brick by brick.
Mary Kraven: Fed Governor Michelle Bowman recently warned that the rate hikes are likely not over. “We have made progress in lowering inflation over the past year, but inflation is still significantly above” the Fed’s 2% target, Bowman said on Monday at an event in Atlanta. She also explained that the job market “continues to be tight, with job openings still far exceeding the number of available workers.”
Do you agree with her assessment?
Adnan Zai: Yes. They have chipped away at inflation piece by piece, after facing the facts of an almost certain recession, but the job is not done. They will continue to raise the rates to combat inflation until they are satisfied. And there is still a disparity between open jobs and the number of workers. One of the reasons is that workers are demanding more money and better conditions. I don’t think that is going away any time soon.
Mary Kraven: What is your projection for Cleveland and the surrounding areas?
Adnan Zai: Cleveland appears to be on an upswing and I can see that positive trajectory continuing. With real estate growth, new restaurants, and the indomitable spirit of the Midwest, it looks like things are trending up.
Mary Kraven: Thank you for taking the time to chat with us about the economy, Adnan Zai. Cleveland and the surrounding areas do look like they are on a positive trajectory! We appreciate your input.