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MNI INTERVIEW:Barkin Sees 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 Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com
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