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Atlanta Fed President Raphael Bostic speaks with Yahoo Finance [Transcript]

·15 min read
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Raphael Bostic, president of the Federal Reserve Bank of Atlanta, spoke with Yahoo Finance on April 14 to discuss economic conditions in the American south and the Fed’s recent $2.3 trillion effort to support the U.S. economy as the coronavirus continues to grip the nation.

Below is a transcript of his appearance:

BRIAN CHEUNG: We do have a guest here to talk with us today about not just what's been going on technically with the Fed but broadly what's going on with the US economy, and that is Atlanta Fed president Raphael Bostic. President Bostic, great to have you join us today.

RAPHAEL BOSTIC: Hi Brian, it’s really good to see you. Good to be here.

BRIAN CHEUNG: So I want to kick things off just by asking so you are the head of the Atlanta Fed and for those that aren't aware regionally that covers Alabama, Florida, obviously Georgia portions of Louisiana, Mississippi and Tennessee, just asking, how are things in the South, what are you hearing from Main Street in those areas in that portion of the country so far.

RAPHAEL BOSTIC: Well in the South we're hearing a lot of the same things that we're hearing from the rest of the country. Businesses are worried. The shutdowns have really hit their cash flows pretty significantly. Households are very concerned, non-profit sector is very concerned. But for me, all eyes have got to be placed on the public health crisis in this response. And so across the South, there is a fair amount of variation in terms of how stringent the lockdowns have been.

And so we what we've seen is really a wave of the move ... of virus ... and it's meant that there really some issues around how quickly we might be able to respond. But the basic response that whereas that I'm seeing across my staff is no, there's been a lot of forbearance as much as possible among businesses, but we really need to see the stimulus support that came through the CARES Act really starts to touch people and I'm hopeful that that will happen sooner rather than later.

BRIAN CHEUNG: Yeah, when you talk about that support from the CARES Act, that also came in conjunction with the Federal Reserve announcing its $2.3 trillion in funding last week, a lot of that using some of the $454 billion in appropriation from Congress, the Fed still has yet to set up its Main Street Lending Facility and I'm just wondering though based on the business context that you talk to a lot of them maybe haven't got their PPP loans yet they're waiting on the Main Street Lending Facility to be set up. Do businesses need more help, is it almost too late, so far for those businesses to stay in business and keep employees on payroll?

RAPHAEL BOSTIC: I don't think it's too late. So you're asking really two questions. One is, are the supports that we're setting up going to get there in time to save businesses. I think the answer there is yes. And my hope is that even for those businesses who might have felt like the 11th hour had already passed, they will see this as an opportunity to get back into the game and get themselves re-established and be stabilized.

The second part really is is there more of this needed. And what I would say to that is it looks that way, you know, as we've gone through this crisis and started with our responses, one of the things that I tried to do very aggressively is get a sense of, if we know that certain segments are being supported, where are the other places that there might be concerns, or weakness, that we should be thinking about.

And as I do that and as I have those conversations I still hear concerns for small businesses, many of whom aren't sure that there's going to be enough in the PPP. I hear concerns from nonprofits, and those are in frontline service sectors like childcare. And also clearly there's been a lot of attention placed on the gig economy as well. Those are all places where there's concerns I would also add the municipal side so state and city governments as well, because we're not seeing the same sorts of tax revenues, they're under funding pressure as well.

BRIAN CHEUNG: I'm sorry. I've muted myself, um, I wanted to ask about muni debt that you just mentioned. So a lot of municipalities have been worried about that but the terms of the $2.3 trillion. Last week specified that only cities with above a million for example, in population will be able to be eligible to have some of their Muni debt bought up through a special purpose vehicle at the Federal Reserve. Do you feel like there should be more support coming for those municipalities, or and if not, what other types of liquidity problems can you see arising that the Federal Reserve might need to address in the future.

RAPHAEL BOSTIC: Let me say two things on this. First, states are getting our participants in the program as well. And they have the ability to transfer some of their funds through this program to cities that can't get the direct funding through our municipal program.

The second thing I would say is we already acted earlier with a Money Market Facility that allows support for businesses, or for investors who own short term government debt. And all that said, there's still a lot of pressure and tension, and I know there are a lot of conversations that are happening between policymakers in Washington and state and local government officials to determine whether the sizing of this has been sufficient.

And I'm hopeful that they first of all have an answer. And if the answer is that there is more that needs to be done, that they give it authorization for that to happen.

ZACK GUZMAN: I'm glad you bring up the fiscal measures being taken or looked at right now too because we did get the update from the IMF, saying that this could potentially be the worst recession that we've seen since the Great Depression. They projected that GDP across the board would shrink 3% this year that would that would dwarf, by far the point 0.1% contraction, that we saw back in the financial crisis in 2009 so curious to get your take on your way the fiscal and monetary sides here, and the fact that the US is slated to post, its worst deficits since World War II.

When you think about other countries like Germany who had been bracing for something like this a doomsday scenario making sure that they weren't running deficits for years leading up to this, how does that, coupled with the Fed's balance sheet now sitting at a record 6 trillion, balance with deficit and a balance sheet that that bloated here? What could that do for the US in the years down the line.

RAPHAEL BOSTIC: Well, I think that there are really, I think about this in sequence. So first of all, we have to get the current situation in order. And, you know, to the extent that requires providing bridges between business bridges for businesses between the pre-virus stage, and the post virus stage, you know, we need to do whatever we can to make sure that the collateral damage coming through that is not permanent or lasting.

And so that is quite a bit expensive you know we're a very large country, and the amount of support, we're going to have to offer is going to be significant. But all that said, I think it's important to remember that before the crisis, the economy was growing in a stable way, and we were seeing growth that was actually historic in his last tenure, and that suggests to me that if we can get to the other side and have as little collateral damage - as few of the small businesses that decide, I got to close my doors - that we can see a rebound, that looks more positive.

Now, If that happens, we still have to deal with the cost of this, but I think that, dealing with that from a position of growth and strength is much preferred to dealing with it while still being in a situation of crisis.

And the last thing I would say I'm sure Chair Powell has been pretty clear about this and regarding our balance sheet, you know we are doing these things in an emergency context and many of them have sunset times on them. So I'm not expecting our balance sheet to remain at this size I think as we get into the recovery phase, I think the natural course of events will lead our balance sheet to start to shrink as we can pull some of these things out and let parts of the economy stand on their own.

BRIAN CHEUNG: President Bostic, when do you think that might be I mean I know that's difficult to predict because of the unpredictable nature of this virus but you know if we do end up seeing the US economy contracting by 5.9% in 2020 as the IMF is projecting. At what point do we A) get the recovery and then B) have a sustained recovery long enough where the Federal Reserve can unwind its balance sheet or maybe take away some of these nine liquidity facilities that they've opened so far.

RAPHAEL BOSTIC: Right, I think you said it right in the beginning of that question which is a lot of this depends on our public health response, and how quickly we get to a place where people feel confident that they're not at risk of contracting the virus by walking down the street or going to the store, going to a ballgame, or going to their place of work.

If we can get to that point, and you know, in Georgia what I've seen is our peak is projected to be somewhere toward the end of this month. If we can get to the peak, and then, and sustain a positive response, no late summer. Beginning of quarter three could be a time when we start to see things turn on again. But for me, you know, I'm trying to look at all the markets in my district to really try to understand better sort of what that trajectory is going to look like. And whether the peaks are going to come sooner so that we can get to the end of it sooner. If that gets extended in some parts, then, then we may have to wait longer and that recovery arc will take longer.

BRIAN CHEUNG: The last few weeks have felt like years, seemingly but people have forgotten that there is another scheduled FOMC meeting that's coming on April 29, as we head into that meeting you guys are about to go into a media blackout I'm wondering what are you watching. What more could the Fed do here if you do see a need for that are there other things in the toolkit, or other types of tools that you would advocate the Fed use now that it's already at the zero bound and expanding its balance sheet.

RAPHAEL BOSTIC: Brian, it’s funny - I was talking with one of my staff and they started setting up things for Sunday afternoons because we seem to have a meeting every Sunday for a while there. So the regular cycle is something that I'll be happy to get back into, but what I would say is, you know, we're serving continuously.

And I think in terms of actions, I don't think that there's any special extra weight that we're giving to our regular meetings. Instead we're going to act as soon as, as aggressively as we can, you know, one thing that we learned coming out of the Great Recession, was that Fed policy is most effective if it goes big, and it goes early. And so we're not going to try to time this, we're going to try to get out as soon as we see a problem and there's a solution that we have tools that are appropriate to address. We're going to get out there and do that. So we will continue to monitor, and things are happening in an incredibly rapid way and so I have no idea of what sorts of things we'll be wrestling with when we get to that meeting.

ZACK GUZMAN: Yeah, I think, I don't think anyone will doubt that you guys went big and you went early I mean just looking back at those emergency rate cuts that kind of kicked the Fed’s response off. It was interesting because we necessarily hadn't seen a lot of the data public data come out yet that would kind of point to making a decision like that, of course. We've got record unemployment claims since then and then it all kind of pans out, but I'm curious to see, just a follow up on Brian's question, what kind of data will be guiding you moving forward.

Would it be mortgage defaults? More stress in the bond market? Seems like we move beyond just looking at job reports and employment claims, so curious to see what's gaining interest right now.

RAPHAEL BOSTIC: Yeah, well it's for me I would say that the job reports and the claims are not providing a lot of real information because we knew from the prescription by public health officials that there were going to be lots of folks who are going to be idled. And so I think they're really just verification, validation of that reality.

But we are looking, I know I continue to look at stresses in mortgage markets for example, the the number of families and businesses to file for forbearance. That will have implications for mortgage servicers for example, are able to fulfill their obligations. Again I mentioned before, the nonprofit sector, their business model is quite different than what you might expect from a for-profit business. And so the types of loan terms that you might see in a PPP or Main Street program aren't really going to work for them. So we're going to have to think about, you know, are there ways that we can restructure or provide carve-outs, so that we don't lose important activities and those sectors.

Those are just two examples where I think we're going to continue to have conversations about what types of things might make sense to try to make sure that we bring forward all the parts of our economy and our society. So that on the other side we are as whole as we possibly can be and have our recovery be as robust as it can be.

BRIAN CHEUNG: And then President Bostic, lastly, you have conversations with district contacts whether or not that's households or businesses, small and large. I'm wondering in these conversations with these times being as trying as they are, what are you telling those businesses and what do you tell them about the Fed’s role in addressing the COVID-19 crisis?

RAPHAEL BOSTIC: I tell them a couple of things, first I tell them that the Fed is open for business. We are working hard, we are monitoring, we are aggressively trying to provide support, wherever we can. I also tell them that we are having ongoing conversations with the banking sector and encouraging the banking sector to extend credit, to work with their customers to try to help bridge them through all of this.

And you know we talk to bankers a lot on this point as well to say look, “We're in an emergency situation. A lot of the things that you might expect us as regulators to say in assessing your portfolios - we're going to view it differently because we understand that this is unprecedented times and requires dramatic and drastic action.”

So we say, “hold tight, continue to have hope, continue to engage and we're all going to work together to get through this.”

ZACK GUZMAN: All right, there you go, reasons for optimism, from Atlanta Fed President Raphael Bostic thank you so much for joining us, appreciate you taking the time.

RAPHAEL BOSTIC: It's a pleasure to talk with you Zack and good to see you Brian.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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