Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, says the U.S. is in for a “rocky” economic period as COVID-19 cases surge and promising vaccines are months away from wide availability.
So in the meantime, he’s urging the president — whether the outgoing or the incoming one — to work with Congress on a second relief package to support unemployed workers and struggling businesses.
“The sooner the better,” he said.
The outspoken leader of the Minneapolis Fed has been taking other bold stances this year. In August, Kashkari penned an op-ed in the New York Times with University of Minnesota epidemiologist Michael Osterholm advocating for more restrictive lockdowns to get the virus under control.
And after the killing of George Floyd, he got together with counterparts at other regional banks in the Federal Reserve System to launch a webinar series tackling a subject matter not often directly confronted within those circles — racism and the economy.
This month, he has been on paternity leave after he and his wife welcomed the newest addition to their family. But he took a few moments last week to offer more of this thoughts on the recovery. Some excerpts from the conversation:
Q: One of the big economic stories this week is the selection of Janet Yellen, the former chairwoman of the Fed, to be the next secretary of the Treasury. What do you think of her appointment?
Kashkari: I think Janet is an inspired choice. She is very smart, extremely experienced, and a dedicated public servant. I couldn’t think of somebody better qualified to serve as Treasury secretary.
Q: What she should address right away?
Kashkari: The biggest challenge that I hope she and this administration focus on is working with Congress to get another support package passed to support unemployed Americans, small businesses, and states and cities that have been dramatically affected by the pandemic. The pandemic is raging out of control right now and we need to take much more aggressive action to get it under control. And a lot of individuals, a lot of families, a lot of small businesses are really suffering because of it.
Q: This is a pretty difficult time, including here in Minnesota, with COVID-19 cases surging. Over the summer, you and Michael Osterholm advocated for putting into place more stringent shutdowns across the country. That obviously didn’t happen then. So what do you think of the enhanced restrictions now being put into place? Are they enough?
Kashkari: That’s unclear if they’re enough. We actually called in our op-ed in the New York Times for a state-by-state basis to make these decisions based on what was happening in these states. Now you’re seeing different regions start to reimpose different measures.
In Minnesota, obviously the governor has imposed some measures. Different states have been even more aggressive in some cases. I saw that Los Angeles is considering a stay-at-home order. Are they going to be enough? I don’t know. It would’ve been much better for us to take aggressive action before the case count exploded because right now the spread is just like wildfire, spreading in our communities.
And trying to put out this raging wildfire is much more difficult now than controlling it when it’s at a much lower level.
Q: There’s a lot of talk right now about the possibility of a double-dip recession this winter. How likely do you think we’re heading there?
Kashkari: It really depends on what Congress ends up doing. If Congress is aggressive with the outgoing or the new administration to provide a lot of financial assistance to families that lose their jobs or to small businesses or midsize businesses that are affected, then I think we can bounce back quickly once we get that vaccine widely available and a lot of people have taken it. And we’ll be able to get back to normal more quickly.
But if that assistance doesn’t come, and then you end up seeing thousands of additional businesses going bankrupt and people losing their homes, foreclosures, renters being kicked out of their apartments because they’re not able to pay their rent, then I think you’ll see a much more muted economic recovery, much more sluggish and a lot more hardship for families all across the country.
So I think it depends on the virus, but it also really depends on whether Congress and the administration can step up and provide that additional support.
Q: You mentioned the vaccines. One of the pieces of good news is the high success rates for some of those vaccines in late trials. Does that make you more optimistic about the strength and pace of an economic recovery next year?
Kashkari: It does. When you talk to the experts, six months ago they were much more cautious about how likely any of these vaccines would end up being very effective.
They told us there was the chance it was going to be like the flu vaccine. I get a flu vaccine every year but it’s only about 50 or 60% effective. So is this is something we’re just going to have to learn to live with, year in and year out? The fact that some of these vaccines at least appear to be much more effective than the annual flu vaccine gives us more optimism that we can get the economy fully reopened, a return to what we had experienced as normal.
We can get back to a normal economy, not have to live in a semi-COVID state on an indefinite basis, so that’s really good news. But it is going to be several months before these vaccines are widely available and ultimately adopted by the American people.
Q: In terms of the longer-term effects of the pandemic, what are some of your biggest concerns about the recovery?
Kashkari: One immediate concern is just the thousands of businesses that have failed already. You think about every restaurant in Minnesota that goes out of business. It’s going to be a vacant storefront for some period of time — for six months, a year, two years — before a new restaurant forms, and then hires staff and starts serving customers again.
That means that in that transition process, that’s going to be a very sluggish recovery until new business form to take the place of those old businesses.
Longer-term, there’s been a lot of focus on this now, is what’s happening to kids who are out of school.
How many kids are not getting any education or minimal education through online learning, especially very young kids? Those are costs that are going to be born by those kids and ultimately by our society for years to come. And we’re not going to know just how much damage is being done probably for quite some time.
Q: Are there some parts of the economy that you think have held up, or rebounded faster than you expected, and some parts that ended up being worse than initially anticipated?
Kashkari: Well, I think the financial sector has done better than I had expected — the banking sector. But that’s really been true because Congress provided so much assistance through the CARES Act in the spring to workers who lost their jobs. So think about every worker who loses their job, how do they pay their credit card bill? How do they make their car payment or their rent or their mortgage?
All of those losses roll up into the banking sector. But they’ve been able to make all of their payments because Congress was generous with unemployment assistance and one-time stimulus checks.
That’s why the banking sector has been pretty robust against this pandemic so far. But what’s going to happen for the next six months, if there is another downturn as appears likely because of the COVID flare-up? It’s really going to depend on whether Congress provides more assistance.
Other sectors that have done poorly, just going back to the restaurant sector, I’m surprised that here in Minnesota how many blue chip, very successful restaurants have announced they’re shutting their doors for good. I understood that the marginal restaurants that weren’t that successful at times probably weren’t going to make it. But some of these were very successful restaurants in good times. And so how many more of those are yet to come? It’s not just restaurants.
That’s just a symptom of challenges of service-oriented businesses across the region. That’s also been a surprise, a negative surprise.