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Free AccessMNI POLICY:More QE Would Be Bad Substitute For Fiscal:Kashkari
Minneapolis Fed President Neel Kashkari on Thursday said more QE would be a far less valuable tool than more fiscal aid to prevent scarring in the economy, and there is almost no scenario where negative interest rates would be beneficial.
"Certainly, we can continue to expand our balance sheet, we can do more on quantitative easing. We are at the effective lower bound on the federal funds rate, but if you can't pay your bills, more quantitative easing is a poor substitute for extended unemployment insurance," Kashkari said during an online talk.
The two main risks of economic scarring come from millions of Americans being out of work for a long time and a potential wave of business bankruptcies, he said. "It's much better to spend money on the front end, to prevent that from happening."
Noting that state and local governments also need support and they employ a big share of the workforce, he said of more fiscal aid: "If they don't do that, we will end up having a much slower, what I would call a grinding recovery."
Kashkari said he and his FOMC colleagues have "never said never" on negative interest rates "but we think that there are other tools that could be more effective, with fewer of the downside risks." It's difficult to imagine a scenario where they would work well, he said, but one could be if 10-year Treasury yields fell to zero and the Fed wanted an upward slope in the curve. Other tools like more QE and guidance would likely be useful ahead of negative rates, he said.
Asked about how the Fed might address the effects of a changing climate, Kashkari said it's difficult for the central bank to incorporate such a long-term event into monetary policy that tends to look out three to five years, Kashkari said. "I struggle with saying how it weaves into our monetary policy process, just because the time horizons seem to me to be quite different, but I'm open-minded about it."
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Why MNI
MNI is the leading provider
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