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18 Months of Rolling Shutdowns Likely: Fed’s Kashkari

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The U.S. economy is looking at about a year and a half of starts and stops as the new coronavirus spreads and recedes, according to Federal Reserve Bank of Minneapolis President Neel Kashkari. 

“We could have these waves of flare-ups, controls, flare-ups and controls until we actually get a therapy or a vaccine,” said Kashkari on “Face the Nation Sunday on CBS. “I think we should all be focusing on an 18-month strategy for our health care system and our economy.”

Kashkari, who oversaw the Troubled Asset Relief Program during the 2008 financial crisis, is a voting member of the Fed’s policy-setting Federal Open Market Committee.

“We’re looking around the world. As they relax the economic controls, the virus flares back up again,” he added. 

Over the past three weeks, close to 17 million people have filed for U.S. unemployment benefits. The Conference Board is forecasting a 5.8% real decline in GDP in the first quarter on an annualized basis followed by 33% annualized contraction in the second quarter.

“This could be a long, hard road that we have ahead of us until we get to either an effective therapy or a vaccine,” he warned. “It’s hard for me to see a V-shaped recovery under that scenario.”

Furthermore, the focus should be on an 18-month strategy both for the U.S. health care system and the economy. “If it ends up being shorter than that, that’s great,” Kashkari said. “We should prepare for the worst-case scenario.”

Small Businesses, Congress

In terms of support for mom-and-pop enterprises, included in the $2.2 trillion stimulus package, “$350 billion is not going to meet the needs across all the small businesses in America,” Kashkari said. “So it will end up being first come first serve, who end up getting the assistance and who’s left on the sidelines.”

While remaining optimistic about relief efforts made by Congress, he says it’s not yet clear “if this support is going to be long enough.” If there are “different phases of shutdowns for the next several months or until we have a therapy or vaccine, they’re going to need more help than that,” Kashkari explained. 

With more economic distress likely until there’s a vaccine, “it’s going to be up to Congress to keep coming back to provide support to the American people,” he added. 

Economic Restart, Bank Health

“We can’t shut down the economy for 18 months, but we need to find ways of getting the people who are healthy, who are at lower risk back to work, and then providing assistance to those who are most at risk, who are going to need to be quarantined or isolated for the foreseeable future,” Kashkari said. “That’s a real challenge for all of us.”

As for massive testing for the virus, Kashkari says he’s spoken with some health care experts “who say that it’s a fantasy … [and] that there simply is not the equipment, there’s not the supply chain. I hope they’re wrong.”

The U.S. needs “to be smart about how we start to reopen parts of the economy with those who are at lowest risk until that capacity and that testing and those vaccines and therapies come online,” he explained. “I think we need an all-of-the-above approach, because we don’t know where we’re gonna have the breakthrough.”

As the crisis drags on, problems “roll up into the banking sector,” he said, if rents and then mortgages can’t be paid.

The banks are well-capitalized today vs. 2006, Kashkari points out. 

“But if this goes on long enough, it could produce strains in the banking sector. And then the Fed and Congress and Treasury would have to step in to make sure that the banks are sound.”


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