MNI INTERVIEW: Barkin See Less Value in Fed QE Amid Low Yields

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Bank of Richmond President Tom Barkin

told MNI on Tuesday that tools like QE, yield curve control and forward guidance

are "less valuable" as long as the yield curve remains low and flat.

     "I don't have any problem with these tools, but what problem are you trying

to solve?" he said in an interview. "I don't have a pre-condition in terms of

timing. The time to move the yield curve is when it needs to move, and I don't

know when that time may be."

     The central bank has "capacity on many of these tools" and in its lending

programs to support businesses through the pandemic, but a slow return of demand

presents a greater worry, he said.

     Propping up confidence requires first and foremost an effective public

health response followed by payments to the unemployed, specific industries and

Main Street businesses, Barkin said. The Fed's near-zero rates, regulatory

changes to encourage lending and emergency credit programs have also helped, and

there's enough firepower left to meet the market's needs, he told MNI. 

     --SLOW RAMP

     Business contacts in the Richmond Fed region are not focused on credit

right now, Barkin said. "They're very focused on cash flow and how do I

structure a model that takes me back to positive cash flow and doesn't put me

into a long term credit situation." 

     Barkin expects the process of "re-engaging in the economy" to be slow and

varied by individuals and industries. A discount shoe store that reopened in

Tennessee is reporting very strong activity but an automaker cognizant of

significantly lower demand is focused on headcount over the next two months. 

     "My forecasts have a relatively slow ramp," he said. "We're really far from

full employment. Inflation has also been under our target." A full recovery in

terms of the Fed's dual mandate looks more likely in 2021 or 2022, rather than

in 2020. 

     --JUNE SEP

     The FOMC's guidance that it intends to keep rates low until the economy is

on track to full health is more useful than any numeric forecast officials could

put out, Barkin said, indicating he sees little value in issuing the Fed's

traditional quarterly projections at the June meeting. 

     "If asked to submit a forecast, I'd do that, but I'm not positive you or

markets will get much value out of my forecasts," he said. 

     "The guidance we've given was reasonably clear in terms of weathering the

virus and returning to a path toward our mandated objectives. You have to ask if

that process will add a ton of value to you or me as we talk about the potential

for out-year rate increases. It doesn't feel like we're anywhere close to

weathering the virus right now." 

     --SHRINKING LABOR POOL

     Beyond the immediate economic impact Covid-19, Barkin is worried whether

the U.S. economy will have enough workers with the right skills over the long

run. 

     The pandemic disrupted high-contact industries such as personal services

particularly hard, and "if those jobs go away, it's not 100% obvious to me that

population gets retrained into the next job," he said. 

     Older workers and working-class women, two groups that have boosted the

labor participation rate over the past five years, may drop out in an era where

people are reluctant to send family to elder care and daycare, he said. By the

same token, immigration is "not likely to increase if you're trying to protect

from disease crossing borders." 

     "A lot of industries will get reshaped," he said.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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