MNI POLICY: Fed's Barkin Sees Divergent Recovery Scenarios

Federal Reserve Bank of Richmond President Tom Barkin said Tuesday his outlook for 2021 remains highly uncertain depending on the path of Covid-19 and the Fed should keep its stimulus program going.

With a highly effective vaccine, "it's easy to imagine us getting back to where we were and beyond," he said, but a prolonged surge could slow the recovery, he told the Charleston Metro Chamber of Commerce on a Zoom call.

The Fed has lowered rates to zero and is purchasing USD120 billion of Treasuries and agency mortgage-backed securities a month. "Until we have the virus behind us, that's what we need to keep doing. Every additional month we do asset purchases is additional stimulus for the economy," he said.

The fact that "spending is coming back faster than employment" also worries him, Barkin said. Big businesses are streamlining and industries like airlines and movie theaters are "fundamentally challenged" in the Covid world. In addition, there are a large number of unemployed people who are not able to go to work because of child care issues or because they don't have the necessary skills.

Further fiscal stimulus could make the most impact by supporting child care and education, services that can help people get back to work, he said.