Swansenreport

A senior White House official is publicly urging the Federal Reserve not to raise interest rates, arguing this spring’s inflation is an energy shock rather than an overheating economy. Up here, where gas prices have already been among the highest in the state, the debate over what’s causing it matters less than what it’s doing to the summer season.

The national argument

White House trade advisor Peter Navarro published an analysis this week arguing that May’s producer price data, like the consumer price data released a day earlier, points to an energy-driven inflation spike — not the kind of broad demand overheating that would normally call for higher interest rates.

The numbers he’s working from are real. Final demand producer prices rose 1.1 percent in May, pushing the year-over-year rate to 6.5 percent, with core PPI (excluding food and energy) up 5.1 percent over the year. The bulk of the May increase came from energy: final demand energy goods jumped 10.7 percent, while food rose just 0.6 percent and trade services actually declined.

Navarro’s argument is that the Federal Reserve shouldn’t respond to an energy shock the way it would respond to ordinary demand-driven inflation, because interest rate hikes don’t fix the underlying problem. As he put it, higher rates can’t produce oil, secure shipping lanes, or lower refining costs — and piling a monetary shock on top of an energy shock risks tipping a price spike into a recession.

It’s worth being clear about what this piece is. Navarro isn’t an independent economist weighing in from the sidelines — he’s a senior advisor in the Trump administration, publicly making the case for why the Fed should hold off on rate hikes at a moment when inflation numbers came in hot. Whether or not his read on the data is correct, the fact that the White House is pressing this argument publicly is itself notable. The Fed is independent by design, and arguments like this are part of how that independence gets tested.

What it looks like from here

Whatever the right policy response in Washington, the energy shock itself isn’t theoretical in Bayfield County. As of late March, Bayfield County already had one of the highest average gas prices in the state, at roughly $3.20 a gallon — among the top three counties statewide, alongside Barron and St. Croix counties. As of this week, GasBuddy has regular unleaded in Bayfield County at roughly $3.99 a gallon — tracking with the statewide climb. AAA had Wisconsin’s overall average at $4.07 a gallon in early June, up from $2.97 a year earlier.

For a region whose economy runs on people driving up from Milwaukee, the Twin Cities, and Chicago for a weekend on the water, that’s not an abstract statistic.

Early signals from across the Northwoods are mixed but not alarming. Some resort owners reported a slower Memorial Day weekend than usual — a few cabins went unbooked for the first time in memory — while others, particularly those closer to the Twin Cities and Eau Claire, said they saw some of their strongest Memorial Day traffic ever. Tourism officials in places like Hayward see that strong holiday weekend as an encouraging early sign for the season, while acknowledging that high gas prices may push some families to choose closer destinations over longer trips — a dynamic that could actually work in Wisconsin’s favor if it keeps in-state travelers closer to home.

For boaters, the math is starker. Marine diesel, which typically runs about a dollar more per gallon than gas on land, was already pushing toward $6 a gallon in northeast Wisconsin by mid-May, with analysts warning it could approach $7 if tensions affecting the Strait of Hormuz continue.

The local takeaway

None of this means the season is in trouble. Early indicators — strong Memorial Day numbers in several Northwoods communities, continued bookings at lodges within a couple hours of major metro areas — suggest people are still coming. But the margin for error is thinner than it’s been in years, and a lot of it comes down to a single number at the pump that most people up here have no control over and even less interest in litigating from a partisan angle.

Whether the energy shock is “transitory,” as Washington likes to debate, or simply the new normal for a while, the practical question for Bayfield’s tourism economy is the same one it’s always been heading into summer: will people still come, and how far will they drive to do it? So far, the early answer seems to be yes — but watch the numbers as the season builds.

Sources: RealClearMarkets, Wisconsin Public Radio, Spectrum News 1, WBAY, Yahoo News/AAA