"Irregular Economic Recovery... Additional Fiscal Support Needed from Trump Administration"

Economic Outlook According to U.S. Regional Fed Presidents
Too Early Economic Reopening Causes Chaos... Unemployment Rate Expected to Fall by Year-End
Negative on Trump's Claims About Negative Interest Rates

[Asia Economy New York=Special Correspondent Baek Jong-min] Presidents of the U.S. Federal Reserve Banks unanimously agreed that the economic recovery after the COVID-19 pandemic would be irregular and emphasized the need for additional fiscal support from the federal government. Most of them responded negatively to the negative interest rate policy advocated by U.S. President Donald Trump. Some presidents also predicted a recovery of the U.S. economy in the second half of the year.

According to the Wall Street Journal (WSJ) and others on the 12th (local time), the Federal Reserve Bank presidents consecutively delivered speeches and broadcast interviews diagnosing the current economic situation. Neel Kashkari, President of the Minneapolis Fed, stated, "The economy cannot be fixed until a vaccine is in hand," and added, "There will be an irregular recovery until we return to normal circumstances."

Patrick Harker, President of the Philadelphia Fed, also agreed on the uneven economic recovery. President Harker diagnosed, "The U.S. economy will eventually recover, but the recovery will be irregular and could cause problems in the financial system." He pointed out, "There is a saying that 'a rising tide lifts all boats,' but it may not apply now." James Bullard, President of the St. Louis Fed, said, "We cannot indefinitely delay reopening the economy," but expressed concern that "reopening without health security could trigger a massive Great Depression."

Regarding this, President Harker agreed with Bullard’s remarks, saying, "Reopening the economy too early could cause confusion in the economy," and "If the economy is started too quickly, 2021 could be difficult."

The Fed presidents argued that under zero interest rate conditions, the federal government should implement even more aggressive fiscal policies than now. Loretta Mester, President of the Cleveland Fed, emphasized in a virtual speech to Chicago financial experts that "direct fiscal support is needed to prevent long-term economic damage."

Robert Kaplan, President of the Dallas Fed, also stated in an interview with CNN that "more fiscal stimulus may be necessary to promote economic growth." Both Presidents Mester and Kaplan predicted that the U.S. unemployment rate, which soared above 20% in the second quarter, would fall to around 8-10% by the end of the year.

Their views align with those expressed by Federal Reserve Chairman Jerome Powell immediately after the Federal Open Market Committee (FOMC) decided to keep the benchmark interest rate at zero last month. Chairman Powell unusually urged Congress to take action, emphasizing the need for fiscal spending.

This is because it is difficult to directly support companies and households in crisis through interest rate cuts and quantitative easing (QE). The Democratic Party announced an additional economic support bill worth $3 trillion on the same day, but the White House and the Republican Party maintain that the effects of existing support measures should be observed.

President Kashkari was more direct in targeting the federal government. He asserted, "The U.S. government has the ability to raise funds to support its people."

The Fed presidents clearly drew the line on the negative interest rate policy advocated by President Trump. President Bullard stated, "Negative interest rates are not a good option for the U.S."

On the same day, President Donald Trump emphasized the necessity of introducing negative interest rates through Twitter, saying, "The U.S. should receive the gift like countries benefiting from negative interest rates. It’s a big number."

However, some Fed presidents hinted at the possibility of a rebound in the second half of the year. Thomas Barkin, President of the Richmond Fed, said in an interview with the Wall Street Journal that the U.S. economy is currently at its lowest point and "a clear plan for managing the COVID-19 crisis will lead to recovery."