MiBiz with Mark Sanchez
Federal Reserve cutting interest rates and Pure Michigan summer travel campaign is back.
Patrick Center: Wednesday afternoon, time for our bimonthly conversation with MiBiz senior writer Mark Sanchez. Well, today's the day. It's very likely the Federal Reserve will raise interest rates.
Mark Sanchez: Today is the day .The Federal Reserve, the Federal Open Market Committee, this is the panel at the Federal Reserve that controls the federal funds rate and controls interest rates. And the federal funds rate is the rate at which banks lend to each other overnight. It's near zero right now. Interest rates have been very low for a long time, now. Oh, by the way, inflation has taken off. Inflation I think was 7.9% annualized average in February. So, the Federal Reserve set to start raising interest rates. The fed is meeting today. It met yesterday and at the end of the meeting today, probably this afternoon, we'll hear an announcement likely. Let's preface that just a bit that we'll see a quarter point increase in the federal funds rate. That will mean maybe a little more interest on your car, on your home loan, on your consumer loan. For businesses, maybe a little more interest there. More significantly, if you read some of economic reports from the outlooks out there, economists think this is going to be now the steady ramping up of interest rates in the U.S. Comerica and PNC in their latest outlook last week they expect maybe up to five interest rate increases here in 2022. And that will take the federal funds rate higher and hopefully, again to get inflation under control a little bit because we're seeing both the Consumer Price Index and the Producer Price Index at elevated rates right now. There are a lot of reasons for that. Bottom line, expect to hear that announcement today that interest rates are beginning to go up.
Patrick Center: You mention potentially five rate hikes this year. This is a very delicate dance.
Mark Sanchez: Yeah. It’s a delicate dance how do you raise interest rates without harming the economy? You've got good economic growth. You've got a lot of reasons, and the traditional is if you have hot economic growth that, that draws up prices, sparks inflation, you cool off the economy. But this is really a supply chain issue. This is not a demand side. This is on the supply side that we're having inflation. So, that is a real delicate dance. You're correct. How do you make these adjustments without causing economic pain? Without causing the economy to come to a halt, slow, slow more than you're certainly want, and with all the events going on the world right now this makes it even more delicate balance today.
Patrick Center: Also balancing a budget. The state looking at potential tax cuts.
Mark Sanchez: Yeah. You know, we talked about this before and you're going to hear about this a lot this year because there are plans the Republicans in the House and Senate have passed a plan to cut taxes. Cut the corporate income tax rate. To cut the personal property tax rate. Some other changes. Governor Whitmer, she wants to get rid of the Retirement Tax and increase the Earned Income Tax Credit. She is basically said she will veto the bill that Republicans passed in the Legislature. And now that sets up either negotiations or the showdown. They're beginning to work on a budget. They have started working on the budget in Lansing for the state's next fiscal year that starts in October, and the governor's been in some agreement that “yup” let’s lower this and this, but she wants kind of a narrow tax cuts where the Legislature wants broader based tax cuts. You 're going to hear a lot about this through the spring and summer. What's going on? What are we going to get? There's a pretty good chance we will get from kind of a tax cut here in Michigan this year. It's just where is going to come? Which pocket? And of course, what does this do to the state budget? There is some thinking among some business groups say, “hey, sure we'd love to cut taxes, Cut our corporate income tax. Cut personal income tax.” But let's be careful that we don't go too far. We create a structural problem that causes budget issues in the years down the line. This also taking place in the state, sitting on billions of dollars it had and surpluses and the one-time money from Federal COVID Relief funding. So again, can’t say it enough. You're going to hear a lot about possible tax cuts in Michigan this year.
Patrick Center: With the cuts come spending. You mentioned a lot of federal dollars ,and as we see a bit of a break here from the pandemic, is that Tim Allen's voice I hear warming up?
Mark Sanchez: Warming up in the bullpen and playing again the Pure Michigan travel tourism promotion is back. Came back last fall with the cold weather tourism campaign, travel campaign to get people to travel in Michigan skiing, snowmobiling, whatever for the winter. And now, the big annual warm weather campaign is heating up, so to speak. Its $16.7 million that Travel Michigan plans to spend between now and August to basically promote the state as we've been in this campaign for almost two decades now. Promote the state as a summer vacation destination. it's a warm weather campaign. There are several communities in the Midwest; Chicago, Cleveland, Green Bay, Indianapolis, I can't go throw them, as well as in-state markets where these ads are now running, They run through August. You'll see the billboards. You'll hear the ads on radio. You’ll see the social media ads. You'll see ads on TV. So, it's back in a fairly good way this year as the tourism industry looks to rebound from a couple of tough years. It did okay last year. People were out traveling more last summer when we had a lull in cases and then we got into the fall with spikes and the recent spike with the variant. But now, it looks like we're moving into a new phase in the pandemic. So, there's a lot of expectations, a lot of hope for a real busy summer travel season. Of course, that's pushed with this Pure Michigan campaign coming back.
Patrick Center: Refresh our memories here. How big is the tourism industry in the state? And also, how does this season's spending compare with past years?
Mark Sanchez: This season, the amount of spending is pretty similar to past years. The last two years, last year was only $15 million for the total budget. This year it's $30 million that the governor and the Legislature appropriated. And then two years ago in the first year of the pandemic basically everything went quiet because there were lockdowns and restrictions and people were not traveling. It’s an industry that's in the need of a little bit of a rebound and there's a lot of hope that the campaign will get people back to traveling as they used to pre-pandemic and help those small business out. As for the size? Last figure I saw was about $12-$13 billion. Travel Michigan really hasn't done that analysis for a couple of years since all this has been going on. It does annual analysis looking at how effective is the campaign? What type of spending it generates? And that's just again, last couple years, it just hasn’t saw the need to do that analysis. I will point to one. There were based on that analysis from a few years ago, that just the summer campaign alone generated about $2.2 billion in travel spending in Michigan. And there was about a $142 million in state tax revenues from that. The folks behind the campaign, and there are some folks who don't believe the state should be spending this money, but the folks behind the campaign say it generates a return on investment.
Patrick Center: MiBiz senior writer Mark Sanchez, thank you so much.
Mark Sanchez: Thank you, Patrick.