- Federal Reserve officials took to videoconferences, TV appearances, and interviews last week to offer their take on the ailing US economy and what must be done to save it.
- Vice Chair Richard Clarida and Minneapolis Fed President Neel Kashkari agreed that the coronavirus’ labor-market fallout is likely worse than already-dismal metrics suggest.
- Several officials suggested additional fiscal and monetary policy will be needed to ensure an even and steady rebound.
- While St. Louis Fed President James Bullard forecasted “relatively rapid growth” in the third quarter, Chicago President Charles Evans warned the odds of his similar base case “may only be a bit higher” than a bleaker situation.
- Here’s what six central bank officials said about the economy through the first week of May.
- Visit the Business Insider homepage for more stories.
While Federal Reserve Chair Jerome Powell has kept his cards close to the chest amid the ongoing coronavirus-led downturn, various central bank officials are offering insight on how they see an eventual economic recovery playing out.
Regional Fed presidents and vice chairs took to interviews, videoconferences, and TV appearances throughout the week as investors digested the central bank’s hefty stimulus measures. Most avoided offering detailed projections, but their remarks hinted at a need for more stimulus, as well as a warning of a prolonged rebound. Some even warned of the economic danger posed by keeping relief policies in effect for too long.
The central bank has slowed its roll in recent weeks after cutting its benchmark interest rate to near zero, creating nine emergency lending facilities, and buying hundreds of billions of dollars in Treasurys and mortgage-backed securities. Powell indicated on April 29 that the bank’s rates will remain low “until it is confident that the economy has weathered recent events,” but strayed away from offering additional forward guidance.
Here’s what six Fed officials recently said about future relief efforts, economic pain points, and a nationwide recovery.
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Chicago Fed’s Charles Evans: ‘I hate to say this, but it is still early stage’
The Chicago Fed chief’s baseline scenario sees growth returning in the second half of 2020 and lasting through the next year, but he warned against betting on such a V-shaped recovery.
“I hate to say this, but it is still early stage,” Charles Evans said in a Tuesday webcast with reporters. “The likelihood of the baseline scenario may only be a bit higher than that of the more pessimistic possibilities.”
One barrier already hindering a bounce-back is a lack of coordination in states’ reopening plans, Evans warned. Rebooting economies at different paces risks a second wave of infections and disruptions to interstate commerce.
“To the extent policymakers — federal, state, local — are all better aligned on maintaining their own activities, which also provide employment and income and also support local businesses, that will be important,” the Chicago chief said. “If we end up having huge disagreements over how that takes place, I think that also ends up being a headwind.”
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Atlanta Fed’s Raphael Bostic: ‘We knew … the response was going to do damage to the economy’
Atlanta Fed President Raphael Bostic made several media appearances during the first week of May, and used several to address concerns of long-term inflation. While economists have mostly praised the central bank for its creativity and speed in rolling out aid, others fear that the Fed’s quickly swelling balance sheet risks economic disaster down the road.
Addressing the immediate recession is the Fed’s first priority, and the authority is aware of the consequences it could face afterward, Bostic said.
“We knew that coming out of this public-health crisis that the response was going to do damage to the economy. And that was required if we were going to get to the other side,” Bostic told CBS’s “Face the Nation” on May 3.
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The Atlanta president also hinted at the need for more easing. The Fed is largely confined to historical precedent and what lawmakers allow it to do, and monetary policy is largely a lending power. Congress may need to step up with more fiscal relief to ensure households and businesses aren’t only relying on debt-creating aid, Bostic said.
“We have limits as to what we can do and how much support we can offer. I think it’s an open question as to how much more is going to be needed.”
St. Louis Fed’s James Bullard: ‘Always waiting for other shoes to drop’
The St. Louis Fed chief was relatively outspoken about his projected timeline for recovery. James Bullard appeared on CNBC Wednesday to offer his relatively optimistic estimates, noting that the entire coronavirus threat could fade by the end of the year.
“In the third quarter, it’ll be a transition quarter, but I would expect relatively rapid growth,” James Bullard said. “And then, hopefully by the time we get to the fourth quarter, we’ll be finishing up this process.”
Bullard echoed his Atlanta peer while speaking with the National Association of Business Economists on Tuesday. He noted that economic aftershocks are an inevitable part of issuing trillions of dollars of aid in a matter of weeks, and added that he doesn’t want the Fed’s easing to last longer than necessary.
“When you’re in a crisis like this you’re always waiting for other shoes to drop,” Bullard said. “I don’t want to be in this situation too long. You are taking the risk of a prolonged downturn, even a depression, and you are taking the risk of a financial crisis.”
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Minneapolis Fed’s Neel Kashkari: ‘I don’t think we’re actually headed for another Great Depression’
For Minneapolis Fed President Neel Kashkari, Friday’s jobs report stands as a stark reminder of how long it will take to return to pre-virus norms.
The Bureau of Labor Statistics announced Friday morning that the US unemployment rate soared to 14.7% in April, its highest level since the Great Depression. Nonfarm payrolls shrank by a record 20.5 million in the month, revealing the rapid labor-market deterioration fueled by the coronavirus pandemic.
The bureau’s survey only accounts for those who are actively looking for work. Kashkari said on Thursday that current conditions make such job-hunting difficult, signaling the labor market is in a deeper rut than the report shows.
“That bad report tomorrow is actually going to understate how bad the damage has been,” Kashkari said in a CNBC interview. “I think the real number is probably around 23% to 24%. It’s devastating.”
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While the unemployment rate hits its highest level in nearly a century, today’s economic crisis isn’t as horrific as that seen in the 1930s, the Minneapolis chief added.
“I don’t think we’re actually headed for another Great Depression,” Kashkari said. “Part of the reason the Great Depression was as bad as it was was that policymakers in the 1930s did the wrong thing. I think we’ve learned from that.”
Richmond Fed’s Thomas Barkin: ‘The pace will likely be slow’
Richmond Fed President Thomas Barkin joined the chorus of central bank officials acknowledging the risks borne of multitrillion-dollar relief measures. He took a more future-focused tone while speaking with the Howard County Chamber of Commerce in Maryland.
“We need to make the investments in the economy we are making right now, so to me this isn’t a question of what we are doing today,” Barkin said. “This is a question of a long-term trajectory, and in the long-term trajectory I believe we are going to have to get our fiscal situation under more control, whatever combination of less spending, higher revenues, or increased growth does that.”
Barkin also emphasized the importance of lifting consumer confidence alongside lockdown measures. Economists have raised the issue that — without widespread testing and case tracking — Americans won’t be willing to leave quarantine even if economies fully reopen.
Ensuring health practices are normalized and disseminated will benefit a post-shutdown nation, Barkin noted.
“The biggest stimulus of all would be real clarity and consistency and unanimity among public officials saying that if you do these seven things, don’t worry about it you will be safe,” he added.
Fed Vice Chair Richard Clarida: ‘It’s going to take some time for the labor market to fully recover’
Regional Fed chiefs weren’t the only officials to make appearances through the start of the month. Vice Chair Richard Clarida noted that both Congress and the Fed need to remain flexible in how they can issue relief, as the coronavirus’s trajectory remains highly uncertain.
“Fiscal policy also plays an essential role,” he said in a CNBC interview. “It may well be the case depending on how the economy evolves that more policy support will be needed from the Fed and possibly also fiscal policy. It just depends on how this evolves.”
Clarida joined his colleague Neel Kashkari, from the Minneapolis Fed, in warning of a worse-than-reported hit to the US labor market. Even if the economy roars back in the second half of 2020, unemployment won’t stage as healthy a recovery, Clarida warned.
“There can be a rebound in the economy once businesses reopen and people return to work,” he said. “But I think realistically it’s going to take some time for the labor market to fully recover from this shock.”
Source: 6 Fed officials spoke out last week about the looming economic recovery. Here’s why they expect it to be bumpy and pose new risks.